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Ratings of major Indian financial institutions/commercial Banks
Extract from Standard & Poor's Ratings- 27th October 2003
INDUSTRIAL DEVELOPMENT BANK OF INDIA: BB/Negative/B
The affirmation of the foreign currency counterparty credit rating on
Industrial Development Bank of India (IDBI) with a negative outlook
reflects the much improved funding cost profile of the institution, which
has benefited from the restructuring of its high-cost liabilities in
fiscal 2002-2003, in terms of its interest cost and maturity profiles. As
part of the restructuring assistance package, the government of India has
allocated a total interest financial support scheme of Indian rupee (Re)
25 billion (US$521 million) over a five-year period, to cover the interest
differential between the institution's existing cost of borrowings and the
pre-determined interest of 8%. IDBI's overall cost of funds has been
reduced by 1.47% at March 2003 from the previous fiscal period, through
the repayment and prepayment (by exercising call options) of maturing
high-cost borrowings.
Such interest cost savings will have a positive impact on the
institution's net interest income margin, which is expected to improve. In
addition, support will come from the gradual pick-up in loan growth as a
result of strengthening industrial activity from better economic growth
expected for the fiscal year ending March 2004.
Nevertheless, the ratings
also recognize the still-weak quality of IDBI's loan book, which had
witnessed an increase in absolute terms and in gross NPA ratios. With the
continued weakness in the institution's loan portfolio, this is expected
to constrain IDBI's net profitability, as a result of the high loan-loss
provisions necessary for its NPAs. The ratings also acknowledge the
current transitional stage of the institution, which is awaiting
Parliamentary approval for the Transfer of Undertaking and Repeal Bill
2002 aimed at transforming IDBI into a universal commercial bank, from its
present development financial institution status.
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