 "Syndicate Bank to raise Rs 1, 750 cr through Tier II capital bonds")
Public sector entity Syndicate Bank plans to raise Rs 1,750 crore through Tier-II capital bonds to shore up its capital base.
ICRA has aasigned AA+ rating to these bonds, which are expected to absorb losses once the 'point of non-viability' is invoked.
The rating factors in the moderation in the Manipal-based bank's capitalisation profile, with core capital at 7. 2 per cent as of June. It was 7.5 per cent in March 2015, against 8.3 per cent in March 2014. (Core capital is the minimum amount a bank must have. Core capital consists of equity capital and declared reserves. The minimum requirement was put in place to ensure consumers are protected when creating financial accounts.)
The moderation in the core capital could be attributed to the growth of advances at 17 per cent during FY15, while internal generation was about 10 per cent.
ICRA said the bank would need to raise a sizeable capital in relation to its net worth to comply with Basel-III norms and to maintain a reasonable growth rate. (Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing and market liquidity risk.) Syndicate Bank would require common equity capital of 40 to 50 per cent of its net worth. This assumes growth in risk weighted assets of 15 to 16 per cent a year and internal generation at 11 to 12 per cent.
Syndicate Bank's asset quality is better than most public sector banks. Its gross non-performing assets (NPAs) rose to 3.7 per cent in June 2015 from 3.1 per cent in March. Gross NPAs were at 2.6 per cent in March 2015. The current gross NPA levels are, however, lower than public sector banks' average of 5.4 per cent in June 2015, the rating agency said.
Its standard restructured advances were also moderate at 4.3 per cent compared to public sector banks' average of 7.5 per cent.
The bank's NPA coverage has deteriorated and stood at 37 per cent in June 2015 compared to 41 per cent in March 2014 and 40 per cent in March 2015. The drop in provision coverage ratio was on account of a steep rise in the gross NPAs in the past few quarters.
Syndicate Bank's ability to control its fresh slippages and timely recovery from restructured advances would be important for the overall asset quality profile, ICRA added.
ICRA has aasigned AA+ rating to these bonds, which are expected to absorb losses once the 'point of non-viability' is invoked.
The rating factors in the moderation in the Manipal-based bank's capitalisation profile, with core capital at 7. 2 per cent as of June. It was 7.5 per cent in March 2015, against 8.3 per cent in March 2014. (Core capital is the minimum amount a bank must have. Core capital consists of equity capital and declared reserves. The minimum requirement was put in place to ensure consumers are protected when creating financial accounts.)
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The bank’s capital adequacy ratio was 10.17 per cent in June 2015. (Capital adequacy ratio is the ratio of a bank’s capital to its risk. Regulators track CAR to ensure a bank can absorb a reasonable amount of loss.)
The moderation in the core capital could be attributed to the growth of advances at 17 per cent during FY15, while internal generation was about 10 per cent.
ICRA said the bank would need to raise a sizeable capital in relation to its net worth to comply with Basel-III norms and to maintain a reasonable growth rate. (Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing and market liquidity risk.) Syndicate Bank would require common equity capital of 40 to 50 per cent of its net worth. This assumes growth in risk weighted assets of 15 to 16 per cent a year and internal generation at 11 to 12 per cent.
Syndicate Bank's asset quality is better than most public sector banks. Its gross non-performing assets (NPAs) rose to 3.7 per cent in June 2015 from 3.1 per cent in March. Gross NPAs were at 2.6 per cent in March 2015. The current gross NPA levels are, however, lower than public sector banks' average of 5.4 per cent in June 2015, the rating agency said.
Its standard restructured advances were also moderate at 4.3 per cent compared to public sector banks' average of 7.5 per cent.
The bank's NPA coverage has deteriorated and stood at 37 per cent in June 2015 compared to 41 per cent in March 2014 and 40 per cent in March 2015. The drop in provision coverage ratio was on account of a steep rise in the gross NPAs in the past few quarters.
Syndicate Bank's ability to control its fresh slippages and timely recovery from restructured advances would be important for the overall asset quality profile, ICRA added.