Care Rates Certificate of Deposits of Vijaya Bank at PR1 Plus

Written by Donald A. Elizondo    Wednesday, 21 December 2011

CARE has assigned 'PR1+' [PR One Plus] rating to the Certificate of Deposits programme of Vijaya Bank for an enhanced limit of Rs.15,000 crore (enhanced from Rs.10,000 crore) with a maturity upto one year. Ratings Instrument Rating Enhancement (Rs. Crore) Ratings Remarks Certificate of Deposits 15,000 'PR1+' Assigned Rating Rationale The ratings factor in the majority ownership by the Government of India (GoI) and the demonstrated support from it in the form of recent capital infusion, the improvement in the bank's financial performance as well as the declining regional concentration. The rating is, however, constrained by sluggish business volumes, deteriorating asset quality, high exposure to the Commercial Real Estate (CRE) sector, below-average Current Account & Savings Account (CASA) mix and weak operational parameters. VB's ability to improve its spreads, contain incremental delinquencies and improve its funding profile are the key rating sensitivities. Bank Profile Vijaya Bank is a Bangalore-based mid-sized public sector bank with the Government of India (GoI) shareholding of 53.87%. As on September 30, 2010, the bank had a network of 1,173 branches. The bank has a substantial footprint in Southern India with around 61% of its branches and 37% of the business coming from the region. VB's total income slightly declined to Rs.5,880 crore during FY10 led by sluggish earnings profile. Although the interest income declined due to a delayed pick-up in credit offtake as well as decline in advances yield; the net interest income showed a robust 29% growth to Rs.1,449 crore due to lower interest expenses. Consequently, NIM of VB surged by 28bps to 2.20% during FY10. Improvement in core earnings (NII) has mainly led to 93% y-o-y surge in the bank's profitability to Rs.507 crore. During H1 FY11, VB posted a profit of Rs.318 crore on total income of Rs.3,041 crore. Despite sluggish business volumes, net interest income improved by robust 32% to Rs.932 crore during H1FY11 mainly due to lower interest expenses. Consequently, q-o-q margins of the bank have been showing an upward trend. Higher slippages have pushed up the bank's gross and net NPA levels to 2.44% and 1.32% respectively. The total restructured portfolio outstanding amounted to Rs.1,323 crore as on September.30, 2010, comprising a 3.36% of total net advances and 29.51% of the networth. With this level of restructuring and the overall delinquency ratio of 10% witnessed so far, the asset quality may see further stress if the bank fails to contain incremental delinquencies.

Last Updated ( Wednesday, 21 December 2011 )