Private sector lender IDBI Bank on Tuesday said S&P Global Ratings has placed its foreign currency issuer credit ratings on credit watch with negative implications. The action reflects the uncertainty regarding the bank's ability to meet its regulatory capital requirement over the next few months.
"S&P Global Ratings placed its 'BB' long-term and 'B' short-term foreign currency issuer credit ratings on IDBI Bank on credit watch with negative implications," the rating agency said in a research report.
S&P has also placed its issue ratings on the ank's senior unsecured debt on credit watch with negative implications.
The bank is expected to raise capital from its majority shareholders--Life Insurance Corporation of India (51%) and the government of India (46%)--before September 30, 2019, to meet the shortfall, but the quantum and timing of the capital infusion is uncertain, it said.
Earlier in January this year, Life Insurance Corporation of India (LIC) has acquired controlling stakeholder in IDBI Bank, following the insurance major buying 51% stake in the bank from the government.
"A net loss in the first quarter of fiscal 2020 (year ending March 31, 2020) due to high provisioning costs eroded IDBI's capital to below the regulatory minimum for a banking license. This is the second instance over the past two years that the bank has breached the regulatory minimum, and it was not in line with our expectation," S&P said in its research report.
IDBI reported a net loss of Rs 3,800.84 crore for the first quarter ended June 30, 2019, as compared to a loss of Rs 2,410 crore in the year-ago period, due to higher provisioning and lower net interest income.
The global credit rating agency, however, opined that the breach could be temporary because IDBI is in the process of raising capital from the Indian government and LIC to clean up its balance sheet and replenish its capitalisation. The bank would require participation from other shareholders because LIC's stake cannot extend beyond 51% according to local regulations, S&P said.
In the Union Budget 2019-20, the government has announced a Rs 70,000 crore recapitalisation into public sector banks, and last week said the capital may be infused very soon. By our estimates, IDBI will need Rs 5,500 crore at the very minimum to plug the regulatory breach and take care of provisioning costs for the next quarter, the rating agency added.
"We aim to resolve the credit watch in the next three months once we have clarity on the bank's plan and the timeline for shoring up its capital base, such that it maintains a sufficient buffer above the regulatory minimum," S&P said.
Ahead of the announcement, shares of IDBI Bank closed 4.80% higher at Rs 29.45 apiece on the Bombay Stock Exchange on Tuesday.
Edited by Chitranjan Kumar