CARE bond ratings: Allahabad Bank up, United Western Bank down

Our Banking Bureau
15 December 2004

Mumbai: Rating agency Credit Analysis and Research Ltd (CARE) has upgraded the rating of the outstanding subordinated Tier II Bonds (Series IV) of Allahabad Bank (AB) of Rs200 crore from ''Care AA'' to ''Care AA+'' (double-A plus). Carrying a coupon of 5.9 per cent per annum, these bonds are to be redeemed at par in June, 2012 through bullet repayment.

Allahabad Bank, incorporated in April 1865, is one of India''s oldest banks, with a 72 per cent government stake. It has 1,935 branches and 85 ATMs, and concentrates in the states of UP, West Bengal, Bihar and MP. The bank''s technology orientation, relatively high proportion of low-cost deposits and substantial reduction in net NPAs contributed to its upgradation.

United Western Bank''s (UWB) Tier II Subordinated Bond issue has been downgraded from Care A- (single-A minus) to Care BBB+ (triple-B plus). Instruments carrying this rating are considered to be of investment grade. They indicate sufficient safety for payment of interest and principal, at the time of rating.

The downgrade results from UWB''s relatively low Tier-I capital adequacy at 5.33 per cent, continued high NPA level during FY''04 and increase in NPAs during the first quarter ended 30 June 2004, declining interest spreads, high exposure to market risk due to longer duration of its investments portfolio and low return on average assets at 0.5 per cent. However, UWB''s stable deposit base, increase in low-cost deposits, and implementation of core banking solutions have cushioned the fall.

UWB, a Maharashtra-based old private sector bank, was incorporated in 1936. It has 230 branches, most located in Maharashtra. The bank has been focusing on technology advancements to improve efficiency and face competition in the banking sector. It is one of the few old private sector banks to have implemented core banking solutions and 130 branches are networked.