Fitch Ratings has affirmed IDBI Bank’s default and viability ratings saying that the core capital levels should improve slightly following the significant capital injection in March quarter of 2017-18.
Fitch has affirmed Long-Term Issuer Default Rating (IDR) at ‘BB+’, with a stable outlook, and has maintained the Viability Rating (VR) of ‘ccc’, the rating agency said in a statement.
“Ongoing challenges have gradually eroded its systemic importance, although we expect the majority state ownership to remain in place and that the authorities are willing to provide support commensurate with its size and systemic role,” it said.
The viability rating reflects Fitch’s belief that core capital levels should improve slightly following the significant capital injection by the government in March quarter of 2017-18, it said.
“While we expect core capital to remain vulnerable to significant financial losses and haircuts on Non Performing Loans (NPLs), the risk of breaching the minimum AT1 trigger point of a 5.5 per cent common equity Tier 1 (CET1) ratio has diminished since 2016-17,” it said.
The IDR rating reflects Fitch’s expectation of a moderate probability of extraordinary state support due to the bank’s waning market position and systemic importance.
IDBI Bank’s competitive position has eroded as it deals with its balance-sheet challenges.
“The government’s large USD 1.9 billion capital injection in 2017-18 (of which USD 1.6 billion came in fourth quarter) reiterates our assessment that the bank’s moderate size, significant deposit base and majority state ownership is likely to keep the probability of government support moderate,” Fitch said.
The stable outlook reflects Fitch’s view that there is no significant change in the sovereign’s ability to support banks during extraordinary stress.