The bank expects to raise capital from its majority shareholders--Life insurance corporation of India and the government of India before September 30, 2019, to meet the shortfall
Shares of IDBI Bank plunged 10 percent intraday on August 28 after global rating agency S&P placed it on Credit Watch saying that it is uncertain whether the lender will be able to meet capital requirements.
The stock corrected more than 56 percent in the last year amid asset quality worries and weak earnings. It was quoting at Rs 26.75, down Rs 2.70, or 9.17 percent on the BSE at 1020 hours IST.
On August 27, S&P Global Ratings placed its 'BB' long-term and 'B' short-term foreign currency issuer credit ratings on IDBI Bank on Credit Watch with negative implications.
"We also placed our issue ratings on the bank's senior unsecured debt on CreditWatch with negative implications," the rating agency said.
S&P further said it placed the ratings on CreditWatch to reflect the uncertainty regarding IDBI's ability to meet its regulatory capital requirement over the next few months.
The bank expects to raise capital from its majority shareholders--Life insurance corporation of India (which owns 51 percent stake) and the government of India (46 percent stake) before September 30, 2019, to meet the shortfall.
"..but the quantum and timing of the capital infusion are uncertain, in our view," S&P said.
The bank reported a net loss of Rs 3,801 crore (widened from Rs 2,410 crore YoY) in the first quarter of fiscal 2019-20 due to high provisioning costs which eroded bank's capital below the regulatory minimum for a banking license.
"This is the second instance over the past two years that the bank has breached the regulatory minimum, and it was not in line with our expectation," the rating agency said.
Excluding the capital conservation buffer (CCB), Indian banks are required to hold a minimum 7 percent Tier-1 capital ratio and a 9 percent ratio of total capital to risk-weighted assets (CRAR). IDBI's Tier-1 capital ratio is 6.14 percent and CRAR is 8.14 percent as of June 30, 2019.
S&P believes the breach could be temporary because IDBI is in the process of raising capital from its majority shareholders. The bank would require participation from other shareholders because LIC's stake cannot extend 51 percent, according to local regulations, it said.
The agency further said raising capital from the market will be particularly challenging, given IDBI's weak valuations. It believes the bank is dependent on the Indian government and LIC for such capital to correct the breach.
S&P aims to resolve the CreditWatch in the next three months once it has clarity on the bank's plan and the timeline for shoring up its capital base, such that it maintains a sufficient buffer above the regulatory minimum.
The government announced the recapitalisation of Rs 70,000 crore for PSU banks.
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