Global rating agency S&P on Thursday said it's 'BB' long-term and 'B' short-term issuer credit ratings on state-run IDBI Bank continues to remain on credit watch with negative implications, due to uncertainty on the lender's ability to meet capital requirements.
The agency said the bank remains in breach of its regulatory capital requirements following a loss in the second quarter of the current fiscal.
IDBI Bank's losses widened to Rs 3,602 crore in the quarter ended September, from Rs 198 crore in the year-ago quarter, on account of higher provisioning for bad loans and lower interest income.
The lender's tier-1 capital ratio stood at 4.22 per cent, well below the minimum regulatory requirement of 7 per cent.
"The continuing placement reflects the uncertainty regarding the bank's ability to meet its capital requirements in the near term," the rating agency said.
It, however, sees the the breach in capital requirement to be temporary.
Life Insurance Corporation (LIC) is in the process of increasing its stake in the bank to 51 per cent.
It had raised its stake from 7.98 per cent to 14.9 per cent in October, resulting in an Rs 2,090 crore injection.
IDBI Bank managing director and chief executive officer Rakesh Sharma Wednesday had told reporters that it expects Rs 20,000 crore capital from LIC once the deal gets approval from the Competition Commission of India (CCI) and market regulator Sebi.
The rating agency said plans by the LIC to increase its stake in IDBI to 51 per cent could restore the capital position.
"That said, some uncertainty remains around the timing of the potential investment in the bank," it added.
A potential majority-stake investment by LIC remains contingent on clearance by the CCI and a resolution of a court case by employees, it further said.
S&P feels post the resolution of these issues, the bank would be in a position to issue shares to LIC, boosting the capital.
"We could remove the ratings from creditwatch once there is further clarity on the timing of this deal," it said, adding, "We believe necessary regulatory approvals are already in place from the RBI and the IRDAI."
Capital injections from LIC would also temper likely weakness in asset quality and earnings in the second half of FY19, according to the agency.
The bank's capital shortfall to meet its tier 1 regulatory minimum was about Rs 5,340 crore as on September. 30, 2018.
The rating agency feels despite the lender's weak standalone credit profile, it is unlikely to default in the next 12 months, given the ongoing capital support from the government and high confidence of the public in government-owned state-run banks, including IDBI.
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