Credit rating agency, ICRA has assigned AA+ rating with a stable outlook to the Rs. 3500 billions (enhanced from Rs 25 billions) Senior & Lower Tier II Bondsprogramme of IDBI Bank (IDBI). ICRA has withdrawn AA rating with a stable outlook from the unutilized Rs 10 billion Upper Tier II Bonds.
IDBI Bank also has AA+ rating with stable outlook, AA rating with stable outlookand MAA+ on the other outstanding Long Term and Lower Tier II Bonds, Upper Tier II and Perpetual Bonds, and Fixed Deposits, respectively.IDBI`s ratings factor in the implicit sovereign support enjoyed by the bank in its role as one of the larger commercial banks in the country and the demonstrated support from Government of India (GoI).
The ratings also take into account the highly competitive operating cost structure, comfortable regulatory capitalization post the impending equity infusion in March 2012 which will boost the core capital and the bank`s improving presence in the retail segment and non-urban centres.
The ratings are constrained by the moderate (though improving) low core profitability1 from operations consequent to low interest margins which though improving is likely to remain weaker to peers over the medium term.
The rating also takes into account the relatively high ALM (Asset Liability Mismatch) gap in the short term buckets while acknowledging the current excess SLR investments and the steps taken by the bank to reduce the same.
ICRA`s has taken note of the relatively large amount of restructuring done by the bank and the deterioration in the asset quality indicators of the bank which are expected to remain in pressure in the short to medium term.
ICRA has also taken note of the merger of wholly owned subsidiaries IDBI (Q,N,C,F)* Home Finance and IDBI Gilts.
With the bank in Q4FY11 and the likely synergies from the merger. The ability of the bank to manage its exposure to power and airlines sector which is currently seeing some headwinds and its relatively higher proportion of restructured assets is the key rating sensitivity.
Recent Results:
For the nine months ended Dec 31, 2011, IDBI reported a net profit of Rs 12.61 billion on a total income of Rs 186.32 billion as against Rs. 1134 billion and Rs 149.84 billion respectively for 9MFY11. The improvement in the profit was driven by the improvement in the net interest income and the core fee based income along with reduction in credit costs for the bank. However, the bank witnessed muted business growth and increase in provisions towards large NPAs and restructured assets in Q3FY12. Net profitability of the bank dipped by 21% QoQ to Rs 4.1 billions in Q3FY12. Capital Adequacy Ratio of the bank stood at 13.53% (Tier I of 7.54%) while its Gross NPA stood at 2.94% and Net NPA stood at 1.96% as on Dec-11. Fresh slippages of the bank increased to Rs 12.34 billion in Q3FY12 (Rs 9.25 billion in Q2FY12), the bulk of which was from a single aviation account. Total restructured assets of the bank also remained high at 6.10% of total advances as on December 2012.
Shares of the company declined Rs 4.05, or 3.87%, to settle at Rs 100.55. The total volume of shares traded was 1,207,276 at the BSE (Thursday).
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