S&P affirms IOB’s ratings, keeps outlook stable


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)