Bangalore, Jan 13 (ANI/Business Wire India): Brickwork Ratings has assigned BWR AA+ (Pronounced BWR Double A plus) to Andhra Bank's proposed upper Tier II bonds issue INR 10.0 billion or Rs 1,000 crore.
Brickwork Ratings has recently rated Andhra Bank's Perpetual Bonds Issue with "AA+" rating.
Brickwork Ratings expects that this addition in the bank's tier II bonds issue will not change the ratings, since the bank remained well within its borrowing capacity and lending patterns.
More over, Brickwork expects that increase in the tier II capital would support the bank's quest to sustain its operations. The bank's overall asset quality seems good with declining trends in NPAs. The bank's slippage has declined by 17 per cent as of 31st March 2008 and the delinquency ratio stood at 0.72 per cent in the same period, which compares favorably to its peers.
Further, the efficient cash-management system coupled with higher income helped the bank improve its cost to income ratio to 47.2 per cent from the previous of level of 50.1 per cent. The rating factored majority ownership of the Government of India, favorable operating spread and returns, lower NPA, less risky loan portfolio, higher Tier 1 capital and leverage.
However, the bank's operation largely concentrated in the state of Andhra Pradesh might be a limiting factor.
Headquartered in Hyderabad, Andhra Bank, a mid sized public sector bank incorporated in 1923, was nationalized in 1980.
The bank offers retail banking, small and medium enterprise (SME) banking, treasury and financial institutional services. The bank's total business increased 20.5 per cent to reach INR 839.93 billion as on 31st March 2008.
This high growth was sustained in spite of 23.55% growth recorded in the previous year - FY 2007. The bank's total deposits stood at INR. 494.36 billion, as on 31st March 2008, a growth of 19.3 per cent over 2007.
Andhra bank is one of the profitable mid-sized public sector banks in India, with total income of INR 48.71 billion for FY 2008, reflecting the continued buoyancy in the bank's core business income, fee based income and focus on healthy asset-quality contributed to the improvement in the profitability. Further, the bank's interest income is 71 basis points more than its peers.
The non interest income of the bank has been marginally lower than that of peers. To augment non-interest income, the bank continues to pursue multi channel approach to sell insurance and investment products.
While the bank's cost of funds at 6.12 per cent is slightly higher than that of peers, the bank has shown higher returns at 9.25 per cent and higher spreads 3.14 per cent. Even though the bank has shown higher returns, the bank's loan portfolio does not appear riskier. Gross NPAs dipped to 1.07 per cent compared to 1.88 per cent of peers.
Net NPAs were down to 0.15 per cent from 0.17 per cent. The real estate loans sensitive exposure has been just 7.94 per cent, less than half of that of bank's peers. The bank's term loan exposure at 41.95 per cent is lower than the peers' average.
The bank's total capital adequacy ratio increased to 11.61 per cent in FY 2008, yet the ratio is less than that of its peers. The bank needs to supplement its capital. Brickwork calculates Leverage that assesses bank's capital adequacy with reference to both on balance and off balance sheet exposures. Andhra Bank has shown a reasonable leverage of 16.4 compared to its peer group at 21.3. In spite of lower leverage the bank's ROE was healthy at 17.97 per cent in FY 2008.
Overall, Brickwork Ratings factored the Government of India ownership, quality of risk weighted assets, low cost deposit base, growth in income, decline in gross NPA, and lower leverage. The Bank is well placed to manage the key challenges in liquidity, credit quality declines in the coming months.
The bank's concentration in a single state as well as lower CASA deposits are limiting factors in the long run. The detailed rationale is enclosed as Annexure A. (ANI)
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