Moody's Investors Service says IDBI's (Baa3 stable, D-/ba3 negative) high exposure to stressed corporate loans, coupled with its already weak profitability, is increasing the bank's asset-quality vulnerability.

''The negative outlook on IDBI's standalone bank financial strength rating reflects our view of the potential for further deterioration in the asset quality of the bank's corporate loans,'' says Srikanth Vadlamani, a Moody's assistant vice president and senior analyst.

Vadlamani was speaking on the release of a new credit focus entitled ''High Corporate Exposure Creates Asset-Quality Vulnerability for IDBI''.

The report looks into the key factors that characterize IDBI's credit profile, including the emerging asset quality trends that led to the change in outlook to negative from stable on Mar. 6, 2014.

''IDBI's asset quality is now roughly in line with that of its peers, having deteriorated more quickly in 2013 because of stress in big-ticket corporate loans,'' says Vadlamani.

At end-2013, IDBI's impaired loans amounted to 85% of its shareholders' equity and loan-loss reserves, at the lowest end of the 85% to 130% range, for similarly rated Indian public sector banks in India (Baa3 stable).

In the nine-month period ended December 2013, IDBI's gross nonperforming loans rose 55% and its restructured loans rose 5%, compared with average increases of 35% and 9%, respectively, for other rated public sector banks.

The report cites high corporate exposure and low profitability as structural weaknesses for IDBI.

Owing to IDBI's history as a development finance institution focused on term loans to corporate borrowers, the bank has one of the highest exposures to large corporate loans among Indian public sector banks.

IDBI's profitability is also amongst the lowest of public-sector banks on account of its weak funding franchise. Hence, its ability to absorb higher credit costs is relatively limited.

The bank's standalone bank financial strength rating has been maintained at D-, reflecting Moody's view that its baseline credit assessment (BCA) of ba3 is appropriately positioned.

The BCA of ba3 incorporates the structural weakness at IDBI, and only one rated public-sector bank has a lower BCA.

The stable outlook on the bank's Baa3 debt and deposit ratings reflects Moody's ongoing assumption of a high probability of government support.

Shares of the bank declined Rs 0.55, or 0.84%, to trade at Rs 65.15. The total volume of shares traded was 313,623 at the BSE (2.18 p.m., Monday).