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IDBI Bank share plunges over 11% as S&P puts lender on 'credit watch'

BusinessToday.In     August 28, 2019

IDBI Bank shares plunged as much as 9.3% after the credit rating firm S&P Global on Tuesday placed the private lender's unsecured debt rating on 'credit watch negative' for breaching its regulatory capital requirement.

IDBI Bank share price opened at a loss of 2.38% at Rs 28.75 as against the previous closing price of Rs 29.45 on BSE. Later, the script fell 11.54% intra day to a low Rs 26.05 on BSE.

IDBI Bank's stock has fallen after 3 days of consecutive gain.

In year-to-date terms, the stock has fallen over 56%. Overall 8.5 lakh shares and 119.9 lakh shares currently trade on BSE and NSE, with more volume traded around the low price registered for the day.

As per the technical trend, the IDBI Bank script started with a gap-down chart pattern and later formed a bearish bar reversal as well as a dark cloud cover candlestick chart pattern today, signalling a bearish reversal during an uptrend. Both the MACD (Moving Average Convergence Divergence) weekly as well as the monthly chart has turned bearish from bullish for the stock.

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.

"IDBI has a weak stand-alone credit profile of 'b-' and has been subject to the central bank's "prompt corrective action" since May 2017. Due to a string of losses brought about by substantial problem loans and associated high provisioning costs, the bank's financial performance has weakened in the past few years," the brokerage added.

S&P has also placed its issue ratings on the lender'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) 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.

S&P Global Ratings has, however, said that the breach could be temporary because IDBI Bank is in the process of raising capital from the government and LIC to clean up its balance sheet and replenish its capitalisation.

"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.

Currently, IDBI Bank share trades 10.70% lower at Rs 26.30 on BSE.

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