Moody’s Investor Service on Tuesday revised state-run lender IDBI Bank’s outlook to positive from stable.
“Moody’s has affirmed the long-term local and foreign currency bank deposit rating of IDBI Bank Ltd. at B1, and changed the outlook to positive from stable,” the rating agency said.
“The positive outlook reflects the upward pressure that could develop on the bank’s long-term rating, if its credit fundamentals — namely the capital position — continues to improve over the next 12-18 months due to capital infusions from the Indian government,” it said.
The government has decided to infuse ₹7,881 crore capital in the public sector lender.
The rating agency said that this capital infusion will increase the common equity tier 1 (CET1) ratio for IDBI to about 9.8% based on the risk weighted assets as of 31 December 2017.
“At the same time, the bank will continue to report losses over the next few quarters on account of high provisioning charges, eroding this capital level. Nevertheless, Moody’s expects that the CET1 [common equity tier-I] ratio as of 31 March 2019 will meet the minimum Basel III capital requirements,” it said.
The rating agency said the positive outlook also factors in Moody’s view on the expected evolution of IDBI’s balance sheet, including a stabilization in asset quality and continued stable funding and liquidity positions.
As of the latest quarter ended 31 December 2017, IDBI’s gross NPA ratio declined to 24.7% from the high of 25.0% in the quarter ended 30 September 2017.
Moody’s said the positive outlook reflects a likely rating upgrade if the standalone baseline credit assessment moves up over the next 12-18 months.
