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Rating Action:

Moody's downgrades senior unsecured ratings of IDBI Bank; revises outlook to stable

29 Aug 2017

Singapore, August 29, 2017 -- Moody's Investors Service has downgraded IDBI Bank Ltd's local and foreign currency bank deposit ratings to B1 from Ba2.

At the same time, Moody's has downgraded the foreign currency senior unsecured rating of IDBI and its Dubai International Financial Centre (DIFC) branch to B1 from Ba2. Similarly, Moody's has downgraded the foreign currency senior unsecured MTN programme rating of IDBI and its DIFC branch to (P)B1 from (P)Ba2.

Moody's has confirmed IDBI's baseline credit assessment (BCA) and adjusted BCA at caa1.

Moody's has downgraded the counterparty risk (CR) assessment for both IDBI and its DIFC branch to Ba3(cr) from Ba1(cr).

The outlook, where applicable, has been changed to stable.

A list of the affected ratings is provided at the end of this press release.

This rating action concludes the review for downgrade initiated on 25 May 2017.

RATINGS RATIONALE

The rating action is driven by a reduction in the amount of extraordinary government support incorporated into the bank's ratings and its weak standalone credit profile.

Moody's has lowered the support assumption for IDBI towards the mid-point of the "very high" support bucket range from the top end of the "very high" support bucket range.

Since May 2017 -- when Moody's initiated its review for downgrade -- IDBI has received INR18.6 billion of new equity from the government and INR3.9 billion of new equity from the Life Insurance Corporation of India (LIC).

Nevertheless, IDBI remains significantly undercapitalized, with a CET 1 ratio of only 6.5%, which is below the current minimum core equity tier (CET 1) ratio norms after factoring in the requirements of capital conservation buffers.

As such, the government's capital infusions have been insufficient to repair the bank's balance sheet. This relatively limited amount of capital support from the government is the key driver for the repositioning of the support assumption for IDBI.

At the same time, Moody's continues to position government support for IDBI in the "very high" bucket, reflecting the systemic importance of public sector banks in India. The viability of public sector banks is crucial for maintaining overall systemic stability, given that these banks cumulatively account for around 74% of the banking system assets.

The support assumptions of IDBI are now consistent with our support framework for the other rated Indian public sector banks.

The bank's BCA of caa1 reflects its weak asset quality and capital metrics. At the same time, the change in outlook to stable reflects Moody's expectation that the bank's standalone credit profile will not further materially deteriorate.

IDBI's capitalization remains extremely weak. Following the latest infusion of capital from the government in August 2017, the bank's CET1 ratio is around 6.5%. This is lower than the minimum CET1 requirement, after factoring in capital conservation buffer requirements, of 7.375% through March 2018, as required by the Reserve Bank of India (RBI).

If the bank is able to execute on the sale of its 16.25% stake in Small Industrial Development Bank of India (SIDBI, unrated), there could be some accretion to capital. However, we expect the bank to continue to report losses for the rest of the financial year ending March 2018 which would further reduce capital levels.

The bank has indicated that it would be paying the coupon on its outstanding AT1 securities that are due on August 31. The ability of the bank to continue to pay the coupons on this instrument beyond August 31 would be contingent upon getting forbearance from the regulators.

Over the next 12-18 months, Moody's expects asset quality issues to persist, although the pace of non-performing loan (NPL) formation should significantly slow. Given its weak asset quality, credit costs will remain high over the next 12-18 months. In addition, the high level of NPLs will continue to severely impact the bank's ability to generate income. Consequently, Moody's expects it to report losses for the remaining three quarters of the financial year ending March 2018.

Despite its weak solvency profile, Moody's notes that IDBI's funding and liquidity positions have remained fairly stable. Nevertheless, given the dominance of corporate deposits, Moody's expects the risks to the bank's funding and liquidity position have increased because of its weak solvency profile. This situation is especially so in regard to the bank's foreign currency book.

WHAT COULD CHANGE THE RATING UP:

A significant improvement in IDBI's capital levels and/or asset quality will put positive pressure on the bank's BCA and ratings. An upgrade in the BCA will lead to an upgrade to the final rating.

WHAT COULD CHANGE THE RATING DOWN:

A further deterioration in the bank's solvency and liquidity levels will put negative pressure on its BCA and ratings. Given that the bank's ratings incorporate a very high level of government support, any changes to Moody's expectation of government support will also translate into negative pressure for its ratings.

The principal methodology used in these ratings was Banks published in January 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Mumbai, IDBI Bank Ltd held assets totaling INR3.37 trillion ($52.1 billion) at end-June 2017.

Following this action, IDBI Bank Ltd's ratings are as follows:

- BCA and Adjusted BCA confirmed at caa1

- LT Bank Deposits (Local & Foreign currency), Downgraded to B1 from Ba2, with stable outlook

- ST Bank Deposits (Local & Foreign currency), affirmed at Not Prime

- Foreign currency senior unsecured debt rating downgraded to B1 from Ba2, with stable outlook

- Foreign currency senior unsecured MTN programme rating downgraded to (P)B1 from (P)Ba2

- Foreign currency subordinate MTN program rating confirmed at (P)Caa1

- Foreign currency junior subordinate MTN program rating confirmed at (P)Caa2

- LT CR Assessment downgraded to Ba3(cr) from Ba1(cr)

- ST CR Assessment affirmed at Not Prime(cr)

The outlook, where applicable, has been revised to stable from review for further downgrade

Following this action, IDBI Bank Ltd, DIFC Branch's ratings are as follows:

- Foreign currency senior unsecured debt rating downgraded to B1 from Ba2, with stable outlook

- Foreign currency senior unsecured MTN programme rating downgraded to (P)B1 from (P)Ba2

- Foreign currency subordinate MTN program rating confirmed at (P)Caa1

- Foreign currency junior subordinate MTN program rating confirmed at (P)Caa2

- LT CR Assessment downgraded to Ba3(cr) from Ba1(cr)

- ST CR Assessment affirmed at Not Prime(cr)

The outlook, where applicable, has been revised to stable from review for further downgrade

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Srikanth Vadlamani
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gene Fang
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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