CARE assigns ''PR1+'' rating to Allahabad Bank''s proposed CD
15 Apr 2005
The rating draws strength from government of India's significant stake in the bank's 139-year track record, network of 1,938 branches, relatively good technology orientation among nationalised banks, satisfactory and stable deposit base with relatively high proportion of low cost deposits, substantial reduction in the level of net NPAs in the recent past and improving financial position. Ability to sustain profitability levels in the wake of hardening interest rates and maintaining a tight leash on incremental NPAs would remain key rating sensitivities.
AB, incorporated in April, 1865, is one of the oldest banks of the country with the government currently having an approximate about 72-per cent stake. The bank's 1,938 branches and 100 ATMs have a major concentration in the states of UP, West Bengal, Bihar and MP.
Total income grew by 10.5 per cent in FY'04 over FY'03 mainly due to higher amount of treasury gains. This together with containment of interest expenses had increased the PAT level significantly, despite higher provisioning for and write-off of NPAs. During the last four years, provisions for NPAs were high and the same were made in excess of the RBI requirement.
Interest spread during FY 2003 and FY 2004 was, by and large, at the same level. ROTA however, improved significantly in FY 2004 over FY 2003 on account of growth in interest income along with improved treasury performance. Interest coverage (before provisions / write-offs) improved from 1.42 in FY 2003 to a comfortable level of 1.63 in FY 2004 due to substantial improvement in profitability. Net NPAs to networth ratio improved very sharply in FY 2004 from FY 2003. This ratio stood at 27.47 per cent in FY 2004 as against 94.54 per cent in FY 2003.
The working results during M9 2005 were quite encouraging with significant increase in total operating income and PAT level in the wake of higher level of business during the period, despite provisioning on account of wage revision. Improvement in profitability was also on account of increase in profit from core banking operations.
Capital adequacy ratio which improved from 11.15 per cent as on March 31, 2003 to 12.52 per cent as on March 31, 2004 declined to 12.11 per cent as on December 31, 2004 in view of increase in business level. AB is however, going to capital market in April, 2005 with its second equity issue for an amount of about Rs.800 crore to improve its capital base.
The asset quality improved substantially over the years. The proportion of gross and net NPAs reduced from 8.66 per cent and 2.36 per cent as on March 31, 2004 respectively to 6.24 per cent and 1.48 per cent respectively as on December 31, 2004. Gross NPA provision coverage witnessed a steady rise and stood at a satisfactory level of 73.8 per cent as on March 31, 2004.
Large portion of bank's total investments is held in government and other approved securities, providing cushion in times of stress. Non-SLR investments portfolio are well diversified with substantial investments in highly rated NCDs and bonds.
The bank's 'asset liability management committee' monitors the liquidity and interest rate risks encountered by the bank. The bank does maturity gap analysis to review the liquidity position on fortnightly basis to review the liquidity position. As a part of its fund management, the bank collects information of RBI balances everyday and keeps a track of its daily fund position and invests its surplus fund in such a way that there is a continuous inflow from maturing investments. Further, high investments in gilt securities, are mostly readily saleable to take care of any eventualities.