Press release from Business Wire India
Source: Brickwork Ratings
Wednesday, March 18, 2009 05:50 PM IST (12:20 PM GMT)
Editors: General: Consumer interest, Economy; Business: Advertising, PR & marketing, Banking & financial services, Business services, Financial Analyst, Stock exchanges
Release no: 19498
--------------------------------------------------
Brickwork Ratings Assigns "BWR AAA" for Union Bank of India's Perpetual Bonds Issue of INR 1.40 billion
Issue Rating: BWR AAA : Outlook- Stable
Bangalore, Karnataka, India, Wednesday, March 18, 2009 -- (Business Wire India) -- Brickwork Ratings has assigned BWR AAA (Pronounced BWR triple A) for Union Bank of India's proposed Perpetual Bonds issue of INR 140 crore, or INR 1.40 billion. Brickwork Ratings expects that this addition in the bank's bonds issue will not change the ratings significantly, since the bank remained well within its borrowing capacity and lending patterns. The rating factored the Government of India's ownership stake, higher operating profits, favorable operating spread and returns, healthy earning assets, optimum operating cost structure, well diversified loan portfolio, comfortable CASA level, and lower delinquency ratio.
Union Bank of India had initiated many steps under Nav Nirman project to accelerate business growth in tandem with the fast changing business environment during FY 07. As a result, the bank's total business had increased to reach INR 2226.25 (INR. 1,797.37 billion during FY08) in Q3 FY 09. The bank is the sixth largest public sector bank with a reported terminal asset base of INR 1,509.37 billion and off-balance sheet exposure of INR 829.23 billion as on 31st December 2008.
During FY 08, the bank has significantly improved the asset quality, which is evident from its NPA ratios. The bank's gross NPA declined sharply to 2.18% as compared to 2.94% as of 31st March 2008. Similarly, the net NPA also dropped to 0.17% as against 0.96%. The bank has further reduced its gross NPA (1.68%) and net NPAs (0.14%) during 3Q FY09. The bank has accomplished excellent credit growth with declining NPAs by adhering to its well defined loan policy and disciplined credit culture.
During Q3 FY 09, the bank posted impressive top line and bottom line figures. Union Bank of India is one of the most profitable public sector banks in India, with total income of INR 32.61 during Q3 FY 09 (INR 105.34 billion during FY 08) , reflecting the significant resilience in core banking operations, excellent fee based income and focus on healthy earning assets which contributed to improvement in the profitability. The operating profit of the bank increased from INR 6.35 (INR. 20.01 billion in FY 08) during Q3 FY 08 to INR 8.54 billion (INR. 25.80 billion in FY 09) during Q3 FY 09, registering an increase of 34.43%. The bank's net profit also increased from INR 3.65 (INR. 8.45 billion during FY 08) during Q3 FY 08 to INR 6.71 billion (INR. 13.87 billion during FY 08) during Q3 FY 09, with an impressive growth of 84.02%. The bank's profitability is largely driven by buoyancy in the core banking operations, lean operating structure, healthy earning assets and growth in non-interest income.
The bank has steadily grown its asset base over the years, aided by robust growth in deposits. During Q3 FY 09, the bank's total deposits stood at INR 1296.47 billion, compared to INR 1,038.58 billion as on 31st March 2008. However, the bank's composition of low-cost deposits to total deposits declined to 30.37% during Q3 FY 09, from 33.12% in Q2 FY 09. Going forward, the bank will continue to focus on retail deposits growth by leveraging its CBS platform to launch CASA and term deposits products to generate more low cost deposits.
The bank has a well diversified loan portfolio with focus on high yielding segments of agriculture credit, MSME credit and retail credit. During Q3 FY09, the bank's advances have grown robustly to reach INR 929.78 billion, with an impressive growth rate of 25.22%. Further, the bank's priority sector advances grew by 17.04% to INR 350.08 billion as on 31st December 2008. Similarly, the bank's MSME grew by 31.62% y-o-y to reach INR 146.12 billion from the previous level of INR 111.02 billion. Further, the bank has achieved 32.15% growth rate in retail loan portfolio. The bank has been very stable with its loan portfolio; however the exposure to sensitive sectors like commercial real estate is a cause for concern.
The bank's capital adequacy ratio is adequate though slightly lower than its peers' average. The bank has reported total capital adequacy ratio of 12.51% under Basel I as on 31st March 2008 compared to 12.80% for the same period a year ago. The bank's tier-I capital ratio stood at a moderate 7.54% as on 31st March 2008, which is slightly lower than its peers' average of 7.95%. During FY 09, the bank has started building up Tier I capital by issuing INR 2 billion perpetual bonds to augment capital funds. Nevertheless, the bank's capital adequacy ratio marginally declined to 12.32% (under Basel 1) during Q3 FY 09. Brickwork expects that Union Bank of India would continue to enjoy systemic support from the Government of India, in the event of any distress. Brickwork calculates Leverage that assess bank's capital adequacy with reference to both on balance and off balance sheet exposures. Union Bank of India has shown a higher leverage of 22.17 compared to its peer group at 19.46.
The ratings by-and-large factored Government of India's ownership stake, healthy earning assets quality, high provisioning, good risk management system, sensible risk asset coverage and adequate risk adjusted capital. Brickwork expects that the continuing financial crises and high returns on term deposits should have an adverse impact on the bank's low cost CASA deposits in the near term. However, the bank's healthy earning assets, robust growth in core income, decline in gross NPAs, adequate risk weighted capital, strong recovery record, and centralized lending process to contain fresh slippages are strong factors which would help the bank to tide over the crises. The detailed Rationale is enclosed as Annexure A.
Copyright ©, 2009, Brickwork Ratings.
All rights are reserved and Brickwork receives fee from issuer for assigning the rating.
Brickwork Ratings has assigned the rating based on the information obtained from issuer and other reliable sources, which are deemed to be accurate. Brickwork has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. Brickwork does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by Brickwork should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument. Brickwork has the right to change, suspend or withdraw the ratings at any time for any reasons. Further, Brickwork should not be held responsible for any losses incurred from publishing or reproducing this report.
To view the Union Bank of India- Rating Rationale, please click on the link given below:
Union Bank of India- Rating Rationale
For picture(s)/data to illustrate this release click below:
http://www.BusinessWireIndia.com/attachments/Union Bank of India - Rating Rationale(1).pdf
Union Bank of India - Rating Rationale(1).pdf
CONTACT DETAILS
A. Suresh Kumar, PhD., Analyst Contact, Brickwork Ratings, +91 (80) 40409940, suresh.kumar@brickworkratings.com
Milind Diwakar, Brickwork Ratings, +91 (80) 40409940, milind.d@brickworkratings.com
Anitha G, Media Contact, Brickwork Ratings, +91 (80) 40409940, media@brickworkratings.com
K N Suvarna, Senior Vice-President, Relationship Contact, Brickwork Ratings, +91 (22) 24304902, kn.suvarna@brickworkratings.com
Rajender S. Walia, Director - Business Development, Relationship Contact, Brickwork Ratings, +91 (22) 24304902, rajender.walia@brickworkratings.com
KEYWORDS
CONSUMER, ECONOMY, MARKETING, BANKING, BUSINESS SERVICES, Financial Analyst, STOCK EXCHANGES
If you wish to change your Business Wire India selection please click on this link http://www.businesswireindia.com/media/news.asp and use your personal username and password to login.
Submit your press release at http://www.businesswireindia.com
No comments:
Post a Comment