BWI: Brickwork Ratings Assigns “BWR AAA” for Union Bank of India’s IPDI Issue of INR 2 billion

Press release from Business Wire India
Source: Brickwork Ratings
Monday, June 15, 2009 06:42 PM IST (01:12 PM GMT)
Editors: General: Consumer interest, Economy; Business: Advertising, PR & marketing, Banking & financial services, Business services, Financial Analyst, Stock exchanges
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Brickwork Ratings Assigns "BWR AAA" for Union Bank of India's IPDI Issue of INR 2 billion


Bangalore, Karnataka, India, Monday, June 15, 2009 -- (Business Wire India) -- Brickwork Ratings has assigned BWR AAA (Pronounced BWR Triple A) for Union Bank of India's proposed Innovative Perpetual Debt Instrument (IPDI) issue of INR 200 crore or INR 2 billion. The rating factored higher profits, strong fee based income, comfortable Tier I capital, stable earning assets, well diversified credit deployment, and the Government of India's equity stake.

The Bank has progressively grown its asset base aided by robust growth in deposits and advances. The Bank's total deposits increased to INR 1387.03 billion during FY 09, from INR 1038.59 billion, up by INR 348.44 billion, reflecting an impressive growth rate of 33.55%. Bank's core deposits grew by a robust 44.75% to reach INR 1241.03 billion from the previous level of INR 857.39 billion. The Bank's CASA deposits increased from INR 362.04 billion in FY08 to INR 417.11 billion in FY09, however, the CASA deposits growth was much slower at 15.2%, leading to a 479-bps decline in the ratio (from 34.86% in FY08 to 30.07% in FY09). The Bank has reduced its high cost deposits of INR 35.20 billion during the year, therefore its high cost deposit to total deposit ratio had come down to 10.53% in FY09 from the previous level of 17.45%. The Bank has added 4.10 million depositors to reach total deposit clientele of 23.60 million as on 31st March 2009.

The Bank has a well diversified wholesale and retail loan portfolio, with focus on agriculture credit, MSME (Medium, Small, and Micro Enterprises) credit and retail credit. The Bank's advances grew by 29.50% during FY09 to reach INR 982.65 billion as compared to INR 758.78 billion for the same period a year ago. During FY09, the Bank's MSME credit and retail credit registered a robust growth of 31.90% and 28.79% respectively. The Bank has accomplished excellent credit growth with declining gross NPAs by adhering to its well defined loan policy. During FY09, the Bank's gross NPA declined to 1.96% from 2.18% as on 31st March 2008. However, the Bank's net NPA were 0.34% as against 0.17% in the previous year. Nevertheless, the Bank's net NPAs were still 31 bps lower than its peers' average. The Bank has consistently improved NPA provisions over the years. During FY 09, the Bank's loan loss coverage ratio stood at 83%, best amongst its peers.

Union Bank of India is one of consistently good profit making public sector banks in India, with total income of INR 133.71 billion during FY 09, reflecting the significant buoyancy in core banking operations, excellent fee based income and focus on healthy earning assets which contributed to improvement in the profitability. As a result, the Bank's operating profit and net profit surged 19.46% (INR 30.82 billion) and 24.51% (INR 17.27 billion) respectively. Yield on Investments improved to 7.24% in FY 09 from 6.96% in FY 08.

The Bank has raised INR 3.42 billion during FY09 to augment Tier I capital. The Bank's Tier-I capital ratio stood at 8.19% as on 31st March 2009, which is significantly higher than the previous year figure of 6.97% under Basel II. Overall, the Bank has reported capital adequacy ratio of 13.27% under Basel II as on 31st March 2009 (11.70% in FY08) while Basel I CRAR was at 12.01%.

Brickwork expects that the current economic slowdown, assets restructuring and high cost deposits to have some pressure on margins and maintaining asset quality in the near term. However, the Bank's effective risk management practices, growing earnings, declining trend in gross NPAs, strong recovery record, 100% CBS branches are positive factors which would help the Bank to manage the present difficult period. Brickwork has assigned a stable rating outlook for the issue.

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 and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. Brickwork has the right to change, suspend or withdraw the ratings at any time for any reasons.


CONTACT DETAILS
A Suresh Kumar, Analysts Contact, Brickwork Ratings, +91 (80) 40409940, suresh.kumar@brickworkratings.com
Mukesh Mahor, Analysts Contact, Brickwork Ratings, +91 (80) 40409940, mukesh.m@brickworkratings.com
Anitha G, Media Contact, Brickwork Ratings, +91 80 4040 9940, media@brickworkratings.com
K N Suvarna, Sr. V P - Business Development, Relationship Contact, Brickwork Ratings, +91 (22) 24304902, kn.suvarna@brickworkratings.com

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

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