SIB’s long-term issuer rating downgraded

KOCHI: India Ratings and Research (Ind-Ra) has downgraded The South Indian Bank Ltd’s (SIB) Long-Term Issuer Rating to ‘IND A’ from ‘IND A+’, whereas the Outlook is negative.

The bank’s instruments have also been downgraded. While the Rs15 billion (Rs1500 crore) Basel III tier 2 debt has been downgraded to Ind A/negative, the Rs5 billion (Rs500 crore) Basel III additional tier 1(AT1) perpetual bonds have been downgraded to Ind A-/negative.

“The downgrade reflects SIB’s challenges on the asset side, which has been aggravated by the prevailing uncertainty in the environment, because of the COVID-19-led disruptions; its weak capital buffers (net stressed assets to net worth stood at 65.7 per cent (in Q1, FY21); and subdued operating performance,” the India-Ra noted.

The agency noted that the bank’s performance is likely to remain under pressure in the medium term, with the provision coverage needing to be ramped up for the stressed assets and the incremental credit costs resulting from likely slippages from the book under moratorium, keeping internal accruals subdued and affecting capital buffers.

Ind-Ra has maintained a Negative Outlook in view of the continued challenges in terms of raising substantial equity, considering the weak operating performance and modest valuations.

The ratings also factor in the bank’s sizeable franchise in southern states, especially in Kerala, the stable liability profile, and diversified loan mix, with an increasing focus towards granular exposures.

 

Leave a Reply

Your email address will not be published. Required fields are marked *