BWI: Brickwork Ratings Assigns “BWR A” for Lakshmi Vilas Bank’s Lower Tier II (subordinated) Bonds Issue of INR 100 Crore or 1 Billion

Press release from Business Wire India
Source: Brickwork Ratings
Friday, January 01, 2010 11:18 AM IST (05:48 AM GMT)
Editors: General: Consumer interest, Economy; Business: Accounting & management consultancy services, Advertising, PR & marketing, Banking & financial services, Business services, Financial Analyst, Stock exchanges
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Brickwork Ratings Assigns "BWR A" for Lakshmi Vilas Bank's Lower Tier II (subordinated) Bonds Issue of INR 100 Crore or 1 Billion
Issue Rating: BWR A, Issue Rating: BWR A

Bangalore, Karnataka, India, Friday, January 01, 2010 -- (Business Wire India) -- Brickwork Ratings has assigned BWR A (Pronounced BWR A) rating with 'stable' outlook to Lakshmi Vilas Bank's (LVB) lower Tier II bonds issue of Rs 100 crore. The Brickwork Rating BWR A signifies 'Adequate credit quality' in terms of timely servicing of debt obligations and the Rating Outlook further signifies the direction of the rating being stable in the near term. Brickwork has relied upon the audited financial statements and information and clarifications provided by the issuer.

FY 09 was a tough year for the banking industry, particularly for the old private sector banks in terms of credit deployment, sustaining asset quality and improving profitability. In spite of slowdown in the domestic market and financial turbulence in the international financial market, the Lakshmi Vilas Bank has posted decent financial performance in FY 09. Bank's total business mix has increased by 33% to Rs 12,606 crore in FY 09 from Rs. 9, 477 crore for the same period a year ago.

During FY 09, the bank's deposits base have achieved a growth of 31.00% to reach Rs 7,360 crore as against Rs. 5,618 crore in FY 08. Similarly, the bank's advances showed an increase of 36.00% to Rs 5,245 crore in FY09 as compared to Rs 3,858 crore in FY 08. Priority sector credit and especially agricultural credit have contributed significantly for the Bank's credit growth .

A major weakness of the bank has been its non-performing assets over the years. However, the bank has reduced its gross and net NPAs during FY 09. The bank's gross and net NPAs were 2.71% and 1.24% respectively in FY 09 as compared to 3.51% and 1.55% respectively in FY 08. However the gross and net NPAs have again increased to 2.91% and 1.55% respectively in Q2 FY 10.

The bank's capital adequacy under Basel I stood at 10.09% during FY 09, which is significantly lower than its peers' average of 13.30%. Similarly, the bank's tier I capital was 361 bps lower than its peers' average of 12.24%. Capital adequacy ratio under Basel II was 10.29% in FY o9, which declined to 9.73% in Q2 FY 10. The CRAR is expected to improve with the proposed issue of Lower Tier II bonds of Rs 100 crore and also Rights issue of Rs 265 crore.

During the year, the bank's return on assets and return on equity stood at 0.71% and 11.54% as compared to 1.24% and 19.24% for peer banks. Further, the bank's cost to income ratio was marginally lower than its peers' average. The bank has been taking steps to improve the cost to income ratio, as a result, the bank's return on assets improved to 0.94% in Q2 FY 10.

The rating factored the bank's performance, capital adequacy, lower term loans component in its assets, and concentration of its branches in semi urban and rural areas.

The rating has further factored the bank's current rights issue, which would help the bank not only to augment its capital structure and also to sustain its growth momentum. The rating is partially affected by increasing NPAs, higher leverage, lower profits and non-interest income, and limited branch network. More over, the bank's branch concentration in a single state and relatively smaller share of low cost deposits are limiting factors. Brickwork expects that the bank would take appropriate steps to contain any further strain on asset quality and going forward, would bring stability is its performance by focusing on improving its asset quality, capital adequacy, low cost deposits and technology driven banking operations.

Copyright ©, 2009, Brickwork Ratings.

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.


CONTACT DETAILS
Dr. A Suresh Kumar, Lead Analyst,, Brickwork Ratings, 1-860-425-2742, suresh.kumar@brickworkratings.com
N Prashanthi, Co-Analyst,, Brickwork Ratings, 1-860-425-2742, prashanthi.n@brickworkratings.com
Anitha G, Media, Brickwork Ratings, 1-860-425-2742, media@brickworkratings.com
K N Suvarna, Sr. VP - Business Development, Brickwork Ratings, 1-860-425-2742, kn.suvarna@brickworkratings.com

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CONSUMER, ECONOMY, CONSULTANCY SERVICES, MARKETING, BANKING, BUSINESS SERVICES, Financial Analyst, STOCK EXCHANGES

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