RPT-Fitch rates IDBI Bank's MTN programme and senior debt 'BBB-'

Mon Dec 16, 2013 6:24am EST

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Dec 16 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned IDBI Bank Ltd's USD5bn Medium-Term Note (MTN) programme and various tranches of its outstanding senior unsecured notes a rating of 'BBB-'. Simultaneously, Fitch has also affirmed the bank's Long-Term Issuer Default Rating (IDR) at 'BBB-', Viability Rating (VR) at 'bb', Support Rating (SR) at '2' and Support Rating Floor (SRF) at 'BBB-'. The Outlook on its IDR is Stable and mirrors that of the Indian sovereign (BBB-/Stable).

The MTN programme and senior unsecured instruments are rated at the same level as the bank's IDR. A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS- IDR, VR, SR and SRF

IDBI Bank's IDR is equal to its Support Rating Floor of 'BBB-' - which is higher than its Viability Rating (VR) of 'bb' - reflecting Fitch's expectation that the government of India would continue to have a high propensity to extend the bank extraordinary support, should there be a need. This expectation is based on IDBI's systemic importance given its share in system assets and deposits (above 3%), pan-India presence, the government's majority ownership of the bank (71.7% as at end-March 2013), and IDBI's role as a strategic shareholder in developing various key institutions (for example, in ARCIL, India's first asset reconstruction firm).

IDBI, along with other state banks, has also received regular capital injections from the government. Over the last three years, IDBI has received total funds of around INR65bn from the government and Life Insurance Corporation of India, which is wholly owned by the government and India's largest life insurer. IDBI's Tier 1 bonds were converted into common equity in the financial year that ended March 2012 (FY12) while it is slated to receive an additional INR18bn from the government in FY14.

IDBI's VR - like most state-owned banks - benefits from this ordinary form of support but remains constrained by its wholesale focused business profile and risks stemming from its concentration on the infrastructure and cyclical sectors. The VR also factors in the bank's traditionally lower profitability than peers, which has been under greater pressure over the last few quarters due to asset quality issues. IDBI as at the end of 1H FY14 reported total stressed assets (gross NPL + performing restructured loans) at around 12.4%, rising sharply from 9% at the end of FY13.

Given the bank's asset concentration, Fitch expects asset quality pressures to continue, particularly on the restructured assets front. However, the INR18bn capital injection expected by end of FY14 should help the bank to achieve a Tier 1 capital ratio of above 8% (FY13: 7.7%). However, capitalisation is expected to remain tight.

RATING SENSITIVITIES -IDR, VR, SR and SRF

The IDR of IDBI Bank is driven by its SR and SRF, which are determined by the agency's assessment of the government's propensity and ability to support a bank determined by its relative size, systemic importance and ownership. A change in these factors or the sovereign rating would affect the SRs and SRFs and as a consequence the bank's IDR. This would in turn impact the rating of the MTN programme and the outstanding senior unsecured instruments issued.

The VR is under pressure and could be downgraded if IDBI's standalone strength is materially affected by a greater than expected weakening in asset quality and/or deteriorating funding mix that are not matched by adequate capital buffer.

The ratings action undertaken is as follows:

IDBI Bank

- Long-Term IDR affirmed at 'BBB-'; Outlook Stable

- Short-Term IDR affirmed at 'F3'

- Viability Rating affirmed at 'bb'

- Support Rating affirmed at '2'

- Support Rating Floor affirmed at 'BBB-'

- USD 5bn MTN Programme rated at "BBB-"

- SGD 250mn Senior Unsecured Notes rated at "BBB-"

- CNY 650mn Senior Unsecured Notes rated at "BBB-"

- CHF 110mn Senior Unsecured Notes rated at "BBB-"

- USD 1.35bn Senior Unsecured Notes rated at "BBB-"

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