ICRA has revised IDBI Bank Limited's (IDBI) Outlook to Positive from Stable while reaffirming the Long-Term Ratings at '[ICRA]A+' and its Short-Term Issuer Rating at '[ICRA]A1+'.
The revision in the outlook on the long-term rating of IDBI Bank Limited (IDBI) factors in the continued improvement in the profitability and capitalisation profile. The same is likely to sustain, given the high provision coverage on the non-performing assets (NPA), leading to a decline in the net NPA (NNPA) level. This has also led to a comfortable solvency1 profile. The recent improvement in the capital cushions was largely driven by the improving earnings profile and modest book growth.
The ratings are based on the standalone credit profile of the bank, given the stated intent of Life Insurance Corporation of India (LIC) and the Government of India (GoI) to sell down/divest their shareholding in the bank. Despite the stated intention of the GoI and LIC to divest their ownership, the share of current and savings account (CASA) deposits and retail term deposits witnessed a steady growth, leading to an improved granularity in the deposit base. The bank's ability to continuously maintain and grow the core deposit base upon the change in ownership may, however, remain a monitorable.
ICRA also notes that the vulnerable loan accounts have reduced from previous levels, with the SMA2 -1 and SMA-2 at 1.5% of standard advances (3.4% as on March 31, 2020) and the standard restructured book at 3.0% of standard advances as on June 30, 2022. The high provision coverage and the prudent provision of Rs. 1,253 crore (0.9% of standard advances), as on June 30, 2022, against the restructured book remain a source of comfort. While IDBI maintains the highest provision coverage ratio (PCR) among all banks, the fresh NPA generation rate has remained elevated partially because of slippages from restructured loans. The bank's ability to arrest incremental credit costs while ensuring timely recoveries will be a key driver of further improvement in the net profitability from the current level.
ICRA has withdrawn the rating assigned to the Rs. 3,756.1-crore Senior & Lower Tier II (Subordinated Bonds) as these are fully redeemed and no amount is outstanding against the same. The rating was withdrawn in accordance with ICRA's policy on withdrawal and suspension.