Rating Rationale
May 16, 2019 | Mumbai
Abu Dhabi Commercial Bank PJSC
Rating Reaffirmed 
 
Rating Action
Rs.1000 Crore Certificate of Deposits Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the certificates of deposit programme of the Indian branch operations of Abu Dhabi Commercial Bank PJSC, India Branches (ADCB India). CRISIL's rating continues to be based on the counterparty credit ratings of 'A/Stable/A-1' by S&P Global Ratings (S&P) on Abu Dhabi Commercial Bank PJSC (ADCB).
 
S&P's ratings on ADCB reflect the bank's high systemic importance in the United Arab Emirates (UAE); majority ownership by, and privileged relationship with, the government of Abu Dhabi; strong business position with a track record of improving earnings generation; strong capitalization; and high quality of capital. These strengths are partially offset by ADCB's high concentration risks on both sides of the balance sheet and sizeable lending exposure in the real estate and hospitality segments.
 
On January 29, 2019, S&P reaffirmed the rating of ADCB post the announcement, that it has agreed to merge with Union National Bank and that the merged entity will then acquire Al Hilal Bank. In continuation to the above announcement, on May 8, 2019, ADCB informed the Reserve Bank of India (RBI) that it plans to exit its operations in India, managed from its branches in Mumbai and Bangalore. The decision is driven by ADCB's strategy to focus on its home market, the United Arab Emirates. CRISIL understands during the interim period, ADCB will be committed to provide all the necessary support to the Indian operations as and when required. 
 
As per CRISILs discussion with the management, the entire process should be completed by end of this fiscal. ADCB India has already started running down its portfolio which has reduced to Rs.1,327 crore as on April 30, 2019 compared to Rs.2,311 crore as on March 31, 2017. The bank has also initiated conversations with a few banks for a complete buyout of its existing business. Total deposits for the bank stood at Rs.2,036.7 crore as on March 31, 2019, out of which top 10 depositors constituted around 55%. CRISIL understands that bank has already communicated its intention of closure of Indian operations to all its stakeholders.
 
As far as liquidity is concerned, as on April 30, 2019, total repayment for the bank stood at Rs.1,333.6 crore for next six months against this it has liquid investments of around Rs.400 crore (includes excess SLR and cash & cash equivalents) and lines of credit from banks of Rs.400 crore. The bank can also raise around Rs.200 crore of funds from Head Office as borrowings and if required, Head Office can infuse additional funds in the form of Tier I capital.

Analytical Approach

CRISIL's rating on ADCB India continues to be centrally based on S&P Global Ratings' counterparty credit rating of ' A/Stable/A-1' on ADCB.

Key Rating Drivers & Detailed Description
Strengths:
* Expectation of strong support from ADCB
The rating on ADCB India continue to be based on the counterparty credit rating of A/Stable/A-1' by S&P on ADCB. ADCB India is likely to continue to benefit from the funding, strategic, and management support from its head office.
 
* Comfortable capitalisation
ADCB India has comfortable capital position, with Tier-I and overall capital adequacy ratios of 27.21% and 28.12%, respectively, and networth of Rs 393 crore as on April 30, 2019 (18.43%, 19.02%, and Rs 401 crore, respectively, as on March 31, 2018). ADCB had infused equity of Rs 153.7 crore in the Indian operations in fiscal 2012, and will infuse more capital to support ADCB India if need be. Capitalisation is also supported by healthy networth coverage for net non-performing assets (NPAs), thereby increasing the cushion against asset side risks.
 
* Healthy asset quality
ADCB India's healthy asset quality is reflected in the low gross NPAs to gross advances ratio of 4.0% as on April 30, 2019 (1.1% as on March 31, 2018). There was additional slippage in the fourth quarter of fiscal 2019 which led to increase in GNPA percentage. The company is conservative in its risk approach and selective in terms of corporate lending, and has adequate mechanisms to manage its relatively chunky exposures. Risk management framework is aligned with ADCB's global risk philosophy and all loans above a certain ticket size are evaluated by a global committee.
 
Weaknesses:
* Modest earnings profile
ADCB India has modest earnings, with low net interest margin (NIM; 1.6%1 in fiscal 2019), given significant proportion of portfolio towards relatively better credits and relatively higher cost of deposits given a low proportion of current account and savings account deposits of 17.9% as on March 31, 2019. It also has moderate fee income, and average operating expense. Provisioning cost is low, given the relatively healthy portfolio quality. Bank reported a loss of Rs. 5.6 crore for fiscal 2019 compared to a profit of Rs 16.4 crore for fiscal 2018. The loss was mainly on account of mark-to-market losses on investments in government securities and increase in the average borrowing cost. Return on assets ratio stood at negative of 0.2% for fiscal 2019 (0.5% for fiscal 2018).
 
* Small scale of operations
ADCB India is a relatively small foreign bank in India with net advances of Rs 1,528 crore as on March 31, 2019 (Rs 2,030 crore as on March 31, 2018), despite its longstanding presence in the country. It mainly provides corporate and transaction banking products and services to corporates and institutions, deposits and loans, cash management/transaction services, trade finance, corporate finance solutions, and remittances. It also offers retail products and services for individual clients, mainly through its non-resident Indian (NRI) services division.
Liquidity

The bank has negative cumulative mismatches in the upto one year bucket of 16.76% as on March 31, 2019. As on April 30.2019, total repayments for the bank stood at Rs 1,333.6 crore for next six months; against this it has liquid investments of around Rs 400 crore (includes excess SLR and cash & cash equivalents) and lines of credit from banks of Rs 400 crore. LCR ratio for the bank stood at 731% as on March 31, 2019.
 
About ADCB
ADCB is a full-service commercial bank offering a wide range of products and services such as retail banking, wealth management, private banking, corporate banking, commercial banking, cash management, investment banking, corporate finance, foreign exchange, interest rate and currency derivatives, Islamic products, project finance, and property management services. ADCB caters to over 800,000 retail and wholesale clients. It had total assets of AED 292 billion as on March 31, 2019. It has a small presence in India, the UK, Singapore, and Jersey.
 
The Abu Dhabi Investment Council owns 60.2% of the Bank's share capital as on 1st May 2019.
 
About ADCB India
ADCB India is a branch of ADCB. ADCB India began operations in 1980 to cater to the remittance and savings needs of NRIs in the UAE and other Gulf countries. It operates through two branches in India-in Mumbai and Bengaluru.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Total Assets Rs crore 2,812 3,418
Total income Rs crore 198 201
Profit after tax Rs crore (5.6) 16.4
Gross NPA % 4.0 1.1
Overall capital adequacy ratio % 28.12 19.02
Return on assets % (0.2) 0.5

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)		 Maturity Date Issue Size
(Rs Cr)		 Rating Assigned
NA Certificate of Deposits NA NA 7-365 Days 1000 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Certificate of Deposits  ST  1000.00  CRISIL A1+      28-09-18  CRISIL A1+  26-09-17  CRISIL A1+  27-09-16  CRISIL A1+  -- 
                    20-04-16  CRISIL A1+   
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Banks and Financial Institutions
Mapping global scale ratings onto CRISIL scale

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

 Krishnan Sitaraman
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 8070
krishnan.sitaraman@crisil.com

Ajit Velonie
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 4097 8209
ajit.velonie@crisil.com

Kunal Mehra
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3292
Kunal.Mehra@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL