India Ratings & Research (Ind-Ra) has affirmed Dena Bank's long-term issuer rating at 'AA-' with a stable outlook. The agency has also affirmed Dena's lower Tier 2 subordinated bonds at 'AA-' and its upper Tier 2 subordinated bonds and Tier 1 perpetual bonds at 'A-'.

The affirmation continues to reflect Ind-Ra's moderate expectation of support from the government of India (GoI) given the bank's status as a government bank (GoI shareholding: 58% in 9MFY15) and moderate systemic importance (about 1.2% share in each of FY14 system assets and deposits; third largest branch network in Gujarat).

In 4QFY15, GoI announced infusion of Rs 1.4 billion in the bank based on its past performance. However Dena's operating performance has been lagging its peers' which may limit the government's contribution in the bank's large capital requirement (Rs 26 billion) under Basel 3 transition. The bank can raise Rs 2.2 billion at current market capitalisation on dilution of the GoI's stake to 51%. In the agency's opinion, the bank's limited ability to raise adequate capital in FY16 and onwards could substantially moderate its asset growth prospects, reduce its market share in bank assets, reduce its systemic importance and could warrant a revision of the rating Outlook.

The bank's 'A-' legacy hybrid capital has been notched down from its intrinsic standalone credit strength, which is weaker than the bank's support-driven Long-Term Issuer Rating. The bank's standalone credit profile factors in its moderate franchise on both assets and liability sides, high exposure to stressed sectors and low core equity Tier 1 capitalisation compared with peers'.

Shares of the company declined Rs 0.25, or 0.47%, to trade at Rs 53.20. The total volume of shares traded was 71,368 at the BSE (11.58 a.m., Wednesday).