ICRA downgrades long-term ratings of NCD programme of IDFC Bank; keeps outlook \'stable\'

ICRA downgrades long-term ratings of NCD programme of IDFC Bank; keeps outlook 'stable'

The ICRA says as the bank is in early stages, its profitability even after the proposed merger with Capital First Limited may remain weak in near to medium term.

Credit rating agency ICRA has downgraded the long-term rating of non-convertible debenture programmes of IDFC Bank and has also reaffirmed its rating for the bank's certificates of deposits. The outlook on the long-term rating of the bank has been kept 'stable'.

"ICRA has downgraded the long-term rating for the Rs 41,711.30-crore non-convertible debenture programme of IDFC Bank Limited to [ICRA] AA+ from [ICRA] AAA. ICRA also reaffirmed the rating of [ICRA] A1+ for the Rs 35,000-crore certificate of deposits programme of IDFC," the credit rating agency said.

The ICRA said as the bank is in early stages, its profitability even after the proposed merger with Capital First Limited (rated [ICRA] A1+) may remain weak in near to medium term due to its poor core operating profitability. However, it said IDFC Bank's capitalisation profile remains strong to support credit growth without the need to raise capital in the medium term.

Further, the cost of interest-bearing liabilities and dependence on wholesale funding may remain higher than that of peer-rated banks as the merged entity (IDFC Bank + CFL) is expected to rely on wholesale deposits upon merger to replace the borrowings of CFL as well as incremental growth, said ICRA. "This is likely to result in below average profitability for the merged entity despite a higher yielding portfolio of CFL," it added. But the merged entity would start with better asset quality and credit provisions, it said.

IDFC Limited (IDFC) was set up by the government to facilitate infrastructure development in the country and started operations in 2015. IDFC's stake in the bank was 56.16 per cent as on September 30. It has an asset base of Rs 1.23-lakh crore and a loan book of Rs 75,331 crore (including credit substitutes). The bank reported a net loss of Rs 188 crore during the first half of FY19. The bank's gross NPAs stood at 1.64 per cent and net NPAs at 0.60 per cent as on September 30.

Capital First Limited is a non-deposit taking, systemically important, non-banking financial company, which was founded in FY13. The company's asset base is Rs 30,037 crore and gross and net NPAs of 1.63 per cent and 1 per cent, respectively. After the NCLT approval, the merged entity will seek a final approval of RBI, including the appointment of proposed MD& CEO, which is expected to be completed by December end.

Edited by Manoj Sharma