While upgrading IDBI Bank’s ratings on sustained improvement in credit profile, rating agency ICRA flagged concerns over high asset quality pressures of the lender in the near term due to the pandemic. It said the bank’s return metrics could remain sub-optimal despite improvement in profitability.
The agency upgraded the rating for the Mumbai-based private lender’s bonds, debentures and tier-II capital instruments from “A” to “A+”. The ratings are based on standalone credit profile, as key investors Life Insurance Corporation of India (49.24 per cent) and the Government of India (45.48 per cent) want to offload their stake in the bank.
The rating factored in sustained improvement in the bank’s credit profile. The agency said the internal capital generation is likely to be sufficient for growth and maintaining cushion over the regulatory capital needs. IDBI Bank’s capital adequacy ratio (CAR) stood at 16.23 per cent with tier-I of 13.64 per cent in June 2021. IDBI Bank’s profitability includes recoveries from fully provided legacy stressed assets. It has used them for accelerated provisioning on other stressed assets and potential asset quality stress in the future.
The bank’s incremental slippages could remain high, given the large overdue book amid the weak operating environment and other vulnerable exposures. The bank maintains one of the highest provision coverage ratios (94 per cent) on its stressed assets. However, the timing of recoveries from these could remain uncertain. IDBI Bank’s ability to offset incremental credit costs by ensuring timely recoveries will be a key driver of net profitability, the rating agency said.
ICRA said on a forward-looking basis, normalised operating profitability is expected to remain better compared to past levels. But the elevated operational costs on a reduced scale and the high share of low/non-yielding assets will continue to impact the operating profitability.
Despite the onset of the pandemic, fresh non-performing assets (NPA) generation moderated to 2.12 per cent in FY21 from 8.35 per cent in FY20 and 12.73 per cent in FY19. However, with the onset of the second wave, NPA generation spiked to 5 per cent (on an annualised basis) in Q1 FY22 and the impact of various regulatory measures gradually ended. Nevertheless, the bank has guided towards the normalisation of NPA generation at 2-2.5 per cent in FY22, ICRA said.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
For more information call us at 9891563359.
We are a group of best insurance advisors in Delhi. We are experts in LIC and have received number of awards.
If you are near Delhi or Rohini or Pitampura Contact Us Here