The infusion could enable IDBI
Bank to accelerate write-offs and make sufficient provisions against stressed assets. However, derisking of the balance sheet and a substantial cleanup of the bank's large stressed assets may take at least a couple of years, S&P added.
The stable outlook on IDBI Bank reflects expectation that the capital infusion will help to meet its regulatory capital on a sustained basis. It also presumes the likelihood of government and government-owned entities such as LIC's support to the bank was very high.
IDBI Bank has been by far the weakest bank in S&P's pool of rated Indian banks (Indian Overseas Bank [IOB] is a close second). IDBI Bank and IOB have a very weak risk position, largely due to their substantial stressed assets.
The rating agency said the extremely high credit costs resulted in losses over the past few years. IDBI Bank's asset quality remains weak. Its reported gross nonperforming loans (NPL) ratio was 31.8% as of September 30, 2018.
The bank had insufficient provisioning coverage of 55 per cent against stressed assets. In addition, the bank has a high concentration of loans to risky sectors, including infrastructure.