India Ratings and Research says the India operations of London-headquartered Barclays bank are vulnerable to deterioration in asset quality, due to its exposure to stressed sectors such as telecom and commercial real estate.
Both sectors have had problems from some time. Telecom companies saw cancellation of licenses by the Supreme Court following the controversial allotment during the period of former telecom minister A Raja. Developers of commercial real estate are hit by low sales and a high cost of capital.
India Ratings said these two sectors could add to pressure on asset quality and operating performance in a moderating macro-economic environment. The agency has also cautioned on the bank’s loan portfolio in the country, which has shown high delinquencies, in both the retail and corporate segments.
Though gross non-performing assets (NPAs) declined to six per cent in 2011-12 from 8.7 per cent of the total a year before, it remains high.
Barclays’ India operations have been assigned a short-term rating of ‘A1+’ and a viability rating of “A” to the parent bank in the UK. Weak profitability is another cause of concern, as the bank is burdened with high operating expenses.
Trading income constitutes about 20 per cent of Barclays India’s operating income, and could add volatility to the profitability in the near term, said the agency.
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It said it expected Barclays Plc, the parent bank, to continue to provide timely support to the India operations. It also noted the UK financial regulator was currently ring-fencing large UK banks’ national interests, which might, in the long run, impact the timeliness of support for Barclays’ overseas operations, such as in India.
The bank’s capital adequacy ratio (Tier-1) at 14.5 per cent is moderate, given its loan concentrations and weak asset quality.
However, Barclays has supported its Indian banking franchise through equity injections in the past, and we expect Barclays to continue doing so, when needed, said India Ratings.
| UNEVENLY AFLOAT | ||||
| Parameter | 2011-12 | 2010-11 | 2009-10 | 2008-09 |
| Net income — profit (Rs cr) | -183.00 | 100.10 | -554.07 | 30.10 |
| Net interest income (Rs cr) | 802.54 | 847.83 | 961.19 | 1058.30 |
| Gross loanbook (Rs cr) | 9078.79 | 8970.86 | 8644.5 | 11,113.75 |
| Gross NPA (%) | 6.03 | 8.71 | 16.99 | 9.43 |
| Capital adequacy ratio (%) | 14.99 | 14.89 | 16.99 | 17.07 |
| Source: India Ratings | ||||