MUMBAI, Feb 11: International rating agency S&P
Global Monday affirmed credit rating of state-run Indian
Overseas Bank (IOB) at ‘BB’ and ‘B’ on expectation of
government’s capital infusion.
The lender’s outlook has also been kept stable.
The bank breached its regulatory capital requirements
after a loss in the third quarter of FY19.
Its tier-I capital ratio was 6.95 percent below the
minimum regulatory requirement of 7 percent.
It’s capital shortfall to meet that regulatory minimum
was about Rs 62.5 crore as of December 31, 2018.
“We expect IOB to receive substantial capital from the
government before the end of this fiscal year in March 2019 to
materially improve the bank’s headroom above the regulatory
minimum tier-I capital ratio of 7 percent,” the rating agency
said in a note.
The bank’s capital position improved in Q4 of FY19
through an employee stock purchase scheme (ESPS) and sale of
non-core assets for which it has received initial payment.
The agency said any lengthy delay in capital infusion
from the government may leave the bank unable to meet its
regulatory capital requirement at fiscal year-end.
“As a result, we would likely to lower the issuer
credit rating by at least two notches,” the agency said.
The bank made improvements in the past few quarters on
parameters such as operating profits, cost efficiency, and
growing low-cost deposits, among others.
The agency, however, said it expects the bank to make
losses in the current fiscal year.
It said the bank’s poor asset quality reflects
weakness in its underwriting standards and aggressive growth
in the past.
The agency said it could lower the rating on the bank
by at least two notches if capital support is delayed or the
capital injection is lower than our expectation. (PTI)
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