BWI: Brickwork Ratings Assigns “BWR P1+” for United Bank of India Certificate of Deposits Issue of INR 100 Billion or Rs. 10,000 Crore

Press release from Business Wire India
Source: Brickwork Ratings
Tuesday, August 11, 2009 06:04 PM IST (12:34 PM GMT)
Editors: General: Consumer interest, Economy; Business: Banking & financial services, Business services, Financial Analyst, Stock exchanges
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Brickwork Ratings Assigns "BWR P1+" for United Bank of India Certificate of Deposits Issue of INR 100 Billion or Rs. 10,000 Crore
United Bank of India; Short Term Rating: BWR P1+

Bangalore, Karnataka, India, Tuesday, August 11, 2009 -- (Business Wire India) -- Brickwork Ratings has assigned BWR P1+ (Pronounced BWR P one plus) for United Bank of India's proposed Certificate of Deposits Issue of INR 100 billion or Rs 10,000 crore. Brickwork Rating BWR P1+ signifies 'Instruments with this rating are considered to offer Best credit quality. The rating factored increasing operating profits, strong low cost deposits base, adequate asset quality, diversified credit portfolio, comfortable capital ratios, and government of India's stake. The rating also factored high leverage, low margins and returns and high cost operating structure.

Macro economic environment in India has witnessed many challenges during the financial year 2009. However, a sound financial market, robust payment and settlement systems and regulator and Government intervention at appropriate times helped the Indian banking sector to post better financial results during the year. The Bank's assets base has achieved a growth of 14.23% to reach a level of Rs 62,040 crore during FY 09. During the year, the Bank's deposits grew reasonably by 16.1% to Rs 54,535 crore, as compared to Rs 46,970 crore for the same period a year ago.

In line with other public sector banks, United Bank's term deposits account for 62.21% of total deposits. Its low cost deposits base has increased from Rs. 16,515 crore in FY 08 to Rs 18,673 crore in FY 09. In percentage terms, however, it had come down 92 bps from 35.16% in FY08 to 34.24% in FY 09.

The Bank's advances grew aggressively during the year by 27% to reach Rs 35,393 crore as against Rs 27,858 crore in FY09. As a result, the Bank's credit to deposit ratio has increased to 64.89% in FY09 as compared to 59.31% in FY 08. The Bank's SME advances registered a growth of 27.5% to reach a level of Rs 3,705 crore in FY 09. Similarly, the Bank's agricultural advances grew by 25.49%. The Bank has witnessed a significant increase in loan growth rate in auto segment, which has grown by 82.5% in FY 09.

Brickwork calculates leverage that assesses Bank's capital adequacy with reference to both on and off balance sheet exposures. United Bank of India's leverage of 24.37 which increased from 23.73 FY 08 was highest among its peer groups' leverage in FY09.

With necessary help from the GOI, United Bank of India has a comfortable capital adequacy. As on 31st March 2009, the Bank's capital adequacy ratio stood at 13.28%, which is 31 bps higher than its peers' average of 12.97%. Similarly, the Bank's the Tier I capital stood at 7.96%, which is 106 bps higher than that of peers.

The Bank's asset quality is a cause for concern. The Bank's gross NPAs were 6.14% in FY 05, which had come down to 2.70% in FY 08, but it had gone up to 2.85% in FY 09. Further, the Bank's gross NPAs was 131 bps higher than its peers' average. Similarly the net NPAs came down from 2.43% in FY 05 to 1.10% in FY 08, but it had gone up to 1.48%. The Bank's net NPAs was 83 bps higher than its peers. The Bank's return on funds is 75bps lower than the peers' average of 8.78%.

The Bank's composition of low-cost deposits to total deposits was very favorable and stood at 34.24%%, which is 214 bps higher than its peers It is observed that the Bank's cost of deposits is 97 bps lower than its peers as on 31st March 2009.

As such, Brickwork has assigned BWR P1+ (Pronounced BWR P one plus) for United Bank of India's proposed Certificate of Deposits Issue of Rs. 10,000 Crore, which signifies Best credit quality. The rating inter-alia factored improving operational performance, capital adequacy, and Government of India's stake in the Bank.

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
Dr. A Suresh Kumar, Lead Analyst Contact, Brickwork Ratings, Toll Free: 1-860-425-2742, suresh.kumar@brickworkratings.com
V Raghunandana, Co-Analyst Contact, Brickwork Ratings, Toll Free: 1-860-425-2742, raghunandana.v@brickworkratings.com
Anitha G, Media Contact, Brickwork Ratings, Toll Free: 1-860-425-2742, media@brickworkratings.com
K N Suvarna, Sr. VP - Business Development, Relationship Contact, Brickwork Ratings, Toll Free: 1-860-425-2742, kn.suvarna@brickworkratings.com

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

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