Icra on Tuesday said it has downgraded long term rating of IDFC First Bank’s bond programme as a result of weak earnings and on higher provisions caused stressed exposures.
The agency in a note said, “the downgrade considers the bank’s weak earnings profile, given the elevated cost-to-income ratio because of the ongoing branch expansion, which has been pressuring the operating profitability, and an increase in credit provisions on account of unanticipated fresh stressed exposures identified by it in Q4 FY19.”
Even though these accounts remain standard exposures, the bank has made a voluntary provision of ?420 crore on these exposures, which increased its loss in the fourth quarter.
“The ability to resolve some of these exposures will be a driver of the associated credit costs and profitability in FY20,” the note said.
The rating agency said the capitalisation of the bank is expected to remain comfortable even though the overall earnings may remain weak in the near to medium term.