ICRA reaffirms AA-minus rating for RBL Bank's Basel III compliant tier-two bond programme

Investment information agency ICRA has reaffirmed AA-minus rating with a stable outlook for RBL Bank's Basel III compliant tier-two bond programme.

At the same time, it has reaffirmed MAA rating with a stable outlook for medium-term fixed deposits and A1-plus rating for the certificate of deposit programme and short-term fixed deposit programme of RBL Bank.

The rating reaffirmation factors in the recent capital raising by the bank which is expected to provide a cushion on the capital levels amid the expected weakening in the asset quality in the corporate segment that could lead to elevated credit provisions and impact net profitability over the near-term.

ICRA said though the bank's reported asset quality remains moderate, it is exposed to slippages from exposures to stressed groups that are currently classified as standard assets.

The net non-performing advances and the standard stressed group exposures declared by the bank (Rs 1,000 crore) stood at 18.7 per cent of its core equity capital as on September 30, 2019 compared to 5.2 per cent as on March 31, 2019.

With the recent equity capital raising of Rs 2,701 crore in December 2019 (4 per cent of risk-weighted assets as on September 30, 2019), the bank is likely to be comfortably placed on its capital, solvency and growth requirements for the next two years.

Going forward, factoring in the slippages from the watchlist and other normal slippages, ICRA expects the solvency levels comfortable with net NPA/core equity well below the thresholds for negative rating trigger.

With estimated credit growth of 15 to 25 per cent, the bank is expected to maintain capital cushions of more than 3 per cent over the regulatory tier-one level by March 2021.

However, with an expected increase in the credit provisions, the return on assets can weaken to about 0.6 per cent in FY 20, depending on the extent of slippages and the provision cover maintained by the bank. This, however, is likely to improve in FY 21, said ICRA.