BWI: Brickwork Ratings Assigns “BWR AAA” for Union Bank of India’s Upper Tier II Bonds Issue of INR 5 billion

Press release from Business Wire India
Source: Brickwork Ratings
Wednesday, June 24, 2009 04:54 PM IST (11:24 AM GMT)
Editors: General: Consumer interest, Economy; Business: Advertising, PR & marketing, Banking & financial services, Business services, Financial Analyst, Stock exchanges
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Brickwork Ratings Assigns "BWR AAA" for Union Bank of India's Upper Tier II Bonds Issue of INR 5 billion
Issue Rating: BWR AAA; Outlook: Stable

Bangalore, Karnataka, India, Wednesday, June 24, 2009 -- (Business Wire India) -- Brickwork Ratings has assigned BWR AAA (Pronounced BWR Triple A) for Union Bank of India's proposed Upper Tier II Bond issue of INR 500 crore or INR 5 billion. Brickwork Ratings has recently rated Union Bank of India's Perpetual Bonds Issue with "AAA" rating. This addition in the Bank's tier II bonds issue would not affect the ratings, since the Bank remained well within its borrowing capacity and lending patterns. The increase in the tier II capital would support the Bank's quest to sustain its growth momentum. The rating factored increased profits, strong fee based income, comfortable tier I capital, stable earning assets, well diversified credit deployment, optimum operating cost structure and the Government of India's equity stake.

During FY 09, the Bank has enhanced its profitability by focusing on retail, MSME (Medium, Small and Micro Enterprises) and agriculture credit, and reduced its exposure on low yielding advances. As a result, the Bank's return on assets stood at 1.27% as against the peers' average of 1.10% as on 31st March 2009. Similarly, the return on equity stood at 24.79% as against the peers' average of 22.04%.

The Bank has been consistently improving its total business over the years. During FY 08, the Bank has adopted several business development initiatives to grow its business and one important initiative is to bring all the branches under core banking solution (CBS). With 100% CBS branches, the Bank skillfully prevailed over the tough economic conditions during FY 09, to grow its total business by 31.84% to reach INR 2369.68 billion as compared to INR 1797.37 billion during FY08. Further, the Bank's credit to deposit ratio has decreased from 75.77% during FY08 to 70.84% in FY09, it is a positive sign. As a result, the Bank's CD ratio was 240 bps lower than its peers' average as on 31st March 2009. The Bank has a well defined treasury operations and risk management system. The Bank has been trying to optimize its investment decisions based on internal risk - return trade off and the board's risk management guidelines. As a result, the Bank's yield on investments has increased to 7.24% during FY09 from 6.96% for the same period a year ago.

The Bank has accomplished excellent credit growth with declining gross NPAs by adhering to its well defined loan policy. During FY09, the Bank's gross NPA declined to 1.96% from 2.18% as on 31st March 2008. However, the Bank's net NPA were 0.34% as against 0.17%. Nevertheless, the Bank's net NPAs were still 31 bps lower than its peers' average. The Bank has consistently maintained better NPA provisions over the years. During FY 09, the Bank's loan loss coverage ratio at 83% is the best amongst its peers.

The Bank's CASA deposits increased from INR 362.04 billion in FY08 to INR 417.11 billion in FY09, however, the CASA deposits growth was much slower at 15.2%, leading to a 479-bps decline in the ratio (from 34.86% in FY08 to 30.07% in FY09). Further, the Bank has reduced its high cost deposits of INR 35.20 billion during the year, therefore its high cost deposit to total deposit ratio had come down to 10.53% in FY09 from the previous level of 17.45%. The Bank has added 4.10 million depositors to reach total deposit clientele of 23.60 million as on 31st March 2009.

The Bank's capital adequacy ratio under Basel II is 39 bps lower than its peers. As of 31st March 2009, the Bank's CRAR was at 13.27% as against the peers' average of 13.66%. Similarly, the Bank's Tier I capital stood at 8.19%, which is slightly lower than its peers' average of 8.27%. The Bank's Tier II capital is expected to improve with the proposed Upper Tier II issue of INR 5 .00 billion.

It is observed that the Bank has got the lowest cost of funds among its peers as on 31st March 2009. The Bank's return on funds is comparatively lower than its peers, which has dipped the Net Interest Margin (NIM) slightly from 3.40% in FY08 to 3.24% in FY09. However, the Bank's NIM is 39 bps higher than its peers' average.

Brickwork expects that the current economic slowdown, assets restructuring and high cost deposits to have some pressure on margins and maintaining asset quality in the near term. However, the Bank's effective risk management practices, growing earnings, declining trend in gross NPAs, strong recovery record, 100% CBS branches are positive factors which would help the Bank to manage the current economic uncertainties. Brickwork has assigned a stable rating outlook for the issue.

Copyright ©, 2009, Brickwork Ratings.

Brickwork Ratings has assigned the rating based on the information obtained from issuer and other reliable sources, which are deemed to be accurate. Brickwork has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. Brickwork does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by Brickwork should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. Brickwork has the right to change, suspend or withdraw the ratings at any time for any reasons.


CONTACT DETAILS
A Suresh Kumar, Analyst Contact, Brickwork Ratings, +91 (80) 40409940, suresh.kumar@brickworkratings.com
Mukesh Mahor, Analyst Contact, Brickwork Ratings, +91 (80) 40409940, mukesh.m@brickworkratings.com
Anitha G, Media Contact, Brickwork Ratings, +91 (80) 40409940, media@brickworkratings.com
K N Suvarna, Sr. VP - Business Development, Relationship Contact, Brickwork Ratings, +91 (22) 24304902, kn.suvarna@brickworkratings.com

KEYWORDS
CONSUMER, ECONOMY, MARKETING, BANKING, BUSINESS SERVICES, Financial Analyst, STOCK EXCHANGES

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