Rating Rationale
August 30, 2019 | Mumbai
Corporation Bank
Ratings Reaffirmed 
Rating Action
Upper Tier-II Bonds (Under Basel II) Aggregating Rs.850 Crore  CRISIL A+/Negative (Reaffirmed)
Lower Tier-II Bonds (Under Basel II) Aggregating Rs.1200 Crore   CRISIL AA-/Negative (Withdrawn)
Tier-I Perpetual Bonds (Under Basel II) Aggregating Rs.437.5 Crore  CRISIL A+/Negative (Withdrawn)
Upper Tier-II Bonds (Under Basel II) Aggregating Rs.550 Crore  CRISIL A+/Negative (Withdrawn)
Fixed Deposit Programme  FAA+/Negative (Reaffirmed) 
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reafffirmed its ratings of 'CRISIL A+/FAA+/Negative' on the Upper Tier II Bonds (under Basel II) and Fixed Deposit Programme of Corporation Bank. The rating on the Rs.437.50 crore Tier I perpetual bonds (under Basel II), Rs.550 crore Upper Tier-II bonds (under Basel II) and Rs.1200 crore lower tier II bonds (under Basel II) have been withdrawn as they have been redeemed and there is nothing outstanding against these. The withdrawal is in line with CRISIL's policy.

CRISIL has also withdrawn its rating on the Upper Tier-II bonds (under basel II) of Rs.300 crore (See Annexure 'Details of Rating Withdrawn' for details) in-line with its withdrawal policy. CRISIL has received independent verification that these instruments are fully redeemed.
The ratings continue to reflect expectation of strong support from the majority owner, Government of India (GoI) and improved capitalization metrics post capital infusion by GoI. These strengths are partially offset by the bank's weak asset quality and earnings profile, and its modest resource profile.  
The bank was put under prompt corrective action (PCA) framework on December 7, 2017. GoI infused Rs 11,641 crore equity capital in fiscal 2019, which was largely used to make incremental provisions, and resultantly, the provision coverage ratio improved to around 68% as on March 31, 2019, from around 37%, a year ago. The net NPA ratio also improved to 5.71% as on March 31, 2019, from 11.74%, a year ago. The bank was removed from the PCA framework on February 26, 2019. Post the infusion, banks capitalization i.e. Tier I and overall capital adequacy ratio (CAR) also improved to 10.52% and 12.3%, respectively, as on March 31, 2019 (7.27% and 9.23%, respectively, as on March 31, 2018).

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of corporation bank. CRISIL has also factored in the strong support that the bank is expected to receive from GoI, both on an ongoing basis and in the event of distress.

Key Rating Drivers & Detailed Description
* Strong expectation of support from the GoI:
The ratings continue to factor in expectation of strong government support, both on an ongoing basis and in the event of distress, as GoI is both the majority shareholder in public sector banks (PSBs) and the guardian of India's financial system. Stability of the banking sector is of prime importance to GoI, given the criticality of the sector to the economy, the strong public perception of sovereign backing for PSBs, and severe implications of any PSB failure in terms of political fallout, systemic stability, and investor confidence in public sector institutions. CRISIL believes the majority ownership creates a moral obligation on GoI to support the PSBs, including Corporation Bank.
As part of the Indradhanush framework, the government has pledged to infuse at least Rs 70,000 crore in PSBs between fiscals 2015 and 2019, of which Rs 25,000 crore each was infused in fiscals 2016 and 2017. Furthermore, in October 2017, GoI outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019, of which PSBs received Rs 88,139 crore in fiscal 2018. Corporation Bank received Rs 11641 crore out of this in fiscal 2019 and Rs 2187 crore in fiscal 2018. GoI will continue to provide distress support to all PSBs and will not allow any of them to fail, and will ensure they meet Basel III capital regulations.
* Improved capitalization metrics, driven by capital infusion by GoI
In fiscal 2019, Corporation bank received Rs.11641 crore from GoI whereby its capitalization ratios improved as evidenced by Tier I and overall CAR of 10.52% and 12.30% respectively as on March 31, 2019 compared to 7.27% and 9.23% as on March 31, 2018. Moreover, bank made high provisions for NPA in fiscal 2019 which led to improvement in its coverage for Net NPAs to 2.4 times as on March 31, 2019 from 0.8 times as on March 31, 2018. However, bank's capitalization will continue to remain a key monitorable as exposure to stressed sectors/accounts may lead to pressure on its earnings profile and hence capitalization levels over the medium term. Moreover, bank remains dependent on GoI for its capital requirements.
* Weak asset quality and earnings profile
Corporation bank's asset quality has been under stress, with gross non-performing assets (NPAs) at 15.44% as on June 30, 2019 (15.35% as on March 31, 2019, and 17.35% as on March 31, 2018). While the corporate book NPAs contributes to most of the gross NPAs, performance of the rest of the book (including MSME [micro, small, and medium enterprise] and agriculture) has also weakened, with GNPAs for these segments increasing both sequentially and over the previous year. CRISIL believes recovery from NCLT accounts will help asset quality going ahead, but Corporation Bank's ability to contain further slippages will be a key monitorable.
Earnings have also weakened considerably in the past few years, due to high credit cost and subdued growth in loan book. Provisioning cost increased to 5.5% of average total assets during fiscal 2019, from 4.5% during fiscal 2018 (1.4% annualised for the quarter ended June 30, 2019, against 3.2% annualised for the corresponding period of the previous fiscal). Provisions remained high due to elevated slippages and ageing of NPAs. The pre-provision profit, as a proportion of average assets, was also low at 1.8% for fiscal 2019 (1.7% for fiscal 2018) due to high interest reversal on NPAs, weak loan growth, and lower other income.
Nevertheless, provisions costs declined for the quarter ended June 30, 2019 which resulted in the bank reporting a PAT of Rs 103crore (Rs 85 crore for the corresponding period in previous year). Return on assets (RoA) was 0.20% for the quarter ended June 30, 2019 as against 0.17% for the corresponding period of the previous fiscal (RoA was negative 2.9% for fiscal 2019). Provisioning coverage ratio (PCR) also increased to 67% as on June 30, 2019 from 39% a year ago. The bank's ability to improve operating profit and contain credit cost will remain a key monitorable over the medium term.
* Modest resource profile
Corporation Bank's resource profile remains modest. with current account and savings accounts (CASA)  deposits stood at 28.7% as on June 30, 2019 (from 31.6% as on March 30, 2019 and 24.3% as on June 30, 2017), it still remains among the lowest in the industry. Overall, the bank's CASA ratio has witnessed a decline from previous level. Corporation Bank is taking measures to improve the proportion of CASA deposits by rebalancing its deposit portfolio to reduce its dependence on high cost term deposits. The benefits of these measures will, however, be visible only over the medium term.

Liquidity: Superior
Liquidity is superior supported by a strong retail deposit base. Liquidity coverage ratio stood at 148.8% as on March 31, 2019, as against statutory minimum of 100%. Liquidity also benefits from access to systemic sources of funds, such as the liquidity adjustment facility from RBI and access to the call money market.

Outlook: Negative on Lower Tier II Bonds (under Basel II), Tier-I Perpetual Bonds (under Basel II), Upper Tier II Bonds (under Basel II) and on Fixed Deposit Programme
CRISIL believes that Corporation Bank will continue to benefit from strong support from GoI. The bank's asset quality and profitability is however, expected to remain under pressure over medium term.
Rating Sensitivity Factors
Upside scenario (for revision in outlook to stable)
* Pre-provisioning profits comfortably cover the provisioning requirement in fiscal 2019 and there is no further deterioration in asset quality (GNPA's at 15-16%).
Downside Scenario (rating downgrade)
* Higher-than-expected losses in fiscal 2019 and/or significant further deterioration in asset quality (GNPA>19%).
* Decline in capital ratios below statutory minimum
About the Bank

Corporation Bank was established in 1906 in Udupi (Karnataka) by a group of merchants, educationists, lawyers and insurance agents. GoI owns 93.5% of the bank's equity share capital. The bank had 2432 branches as on June 30, 2019.

For quarter ending June 30, 2019, the bank reported a profit of Rs 105 crore on total income (net of interest expenses) of Rs 1773 crore as against net profit of Rs 85 crore  on total income (net of interest expenses) of Rs 2351 crore for the corresponding quarter previous fiscal.

Key Financial Indicators
As on / for  the year ended March 31   2019 2018
Total Assets Rs crore 213624 221891
Total income (net of interest expenses) Rs crore 7381 7151
Profit after tax Rs crore -6332 -4054
Gross NPA % 15.35 17.35
Overall capital adequacy ratio % 12.30 9.23
Return on assets (annualised) % -2.9 -1.7

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.
Note on Hybrid Instruments (Under Basel II)
Given that hybrid capital instruments (Tier-I perpetual bonds and Upper Tier-II bonds; under Basel II) have characteristics that set them apart from Lower Tier-II bonds (under Basel II), the ratings on the two instruments may not necessarily be identical. The factors that could trigger a default event for hybrid instruments include: the bank breaching the regulatory minimum capital requirement, or the regulator's denial of permission to the bank to make payments of interest and principal if the bank reports losses. Hence, the transition from one rating category to another may be significantly sharper for these instruments than in the case of Lower Tier-II bonds; this is because debt servicing on hybrid instruments is far more sensitive to the bank's overall capital adequacy levels and profitability.

Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of
Rate (%)
Issue Size
(Rs Cr)
Rating Outstanding 
with Outlook
INE112A09166 Upper Tier-II Bonds (under Basel II) 29-Apr-10 8.75 29-Apr-25 550 CRISIL A+/Negative
NA Fixed Deposit Programme NA NA NA Programme FAA+/Negative

Annexure - Details of Rating Withdrawn
ISIN Name of Instrument Date of
Rate (%)
Issue Size
(Rs Cr)
INE112A09026 LT II bonds under Basel II 19-Mar-08 9.3 19-Mar-18 200
INE112A09034 LT II bonds under Basel II 27-Mar-08 9.4 27-Mar-18 300
INE112A09042 LT II bonds under Basel II 03-Dec-08 10.8 03-Dec-18 200
INE112A09083 LT II bonds under Basel II 31-Mar-09 8.85 31-May-19 500
INE112A09141 Tier-I Perpetual Bonds
(under Basel II)
11-Aug-09 9.05 Perpetual 100
INE112A09133 Upper Tier-II Bonds
(under Basel II)
11-Aug-09 8.45 11-Aug-24 300
INE112A09125 Upper Tier-II Bonds
(under Basel II)
10-Aug-09 8.45 10-Aug-24 250
INE112A09067 Tier-I Perpetual Bonds
(under Basel II)
19-Jan-09 9 Perpetual 237.5
INE112A09158 Tier-I Perpetual Bonds
(under Basel II)
16-Aug-09 9.1 Perpetual 100
INE112A09059 Upper Tier-II Bonds
(under Basel II)
12-Dec-08 10.1 12-Dec-23 300
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    --    --    --  04-04-17  Withdrawal  15-03-16  CRISIL A1+  CRISIL A1+ 
                    10-03-16  CRISIL A1+   
Fixed Deposits  FD  0.00  FAA+/Negative      30-08-18  FAA+/Negative  31-08-17  FAA+/Negative  15-03-16  FAAA/Negative  FAAA/Stable 
            25-01-18  FAA+/Stable  08-06-17  FAAA/Negative  10-03-16  FAAA/Negative   
                04-04-17  FAAA/Negative       
Lower Tier-II Bonds (under Basel II)  LT  0.00
Withdrawal      30-08-18  CRISIL AA-/Negative  31-08-17  CRISIL AA-/Negative  15-03-16  CRISIL AA/Negative  CRISIL AA+/Stable 
            25-01-18  CRISIL AA-/Stable  08-06-17  CRISIL AA/Negative  10-03-16  CRISIL AA/Negative   
                04-04-17  CRISIL AA/Negative       
Perpetual Tier-I Bonds (under Basel II)  LT  0.00
Withdrawal      30-08-18  CRISIL A+/Negative  31-08-17  CRISIL A+/Negative  15-03-16  CRISIL AA-/Negative  CRISIL AA/Stable 
            25-01-18  CRISIL A+/Stable  08-06-17  CRISIL AA-/Negative  10-03-16  CRISIL AA-/Negative   
                04-04-17  CRISIL AA-/Negative       
Tier I Bonds (Under Basel III)  LT    --    --  30-08-18  Withdrawal  31-08-17  CRISIL A-/Negative  15-03-16  CRISIL A/Negative  CRISIL AA-/Stable 
            25-01-18  CRISIL A-/Negative  08-06-17  CRISIL A/Stable  10-03-16  CRISIL A/Negative   
                04-04-17  CRISIL A/Negative       
Tier II Bonds (Under Basel III)  LT    --    --    --  08-06-17  Withdrawal  15-03-16  CRISIL AA/Negative  CRISIL AA+/Stable 
                04-04-17  CRISIL AA/Negative  10-03-16  CRISIL AA/Negative   
Upper Tier-II Bonds (under Basel II)  LT  550.00
CRISIL A+/Negative      30-08-18  CRISIL A+/Negative  31-08-17  CRISIL A+/Negative  15-03-16  CRISIL AA-/Negative  CRISIL AA/Stable 
            25-01-18  CRISIL A+/Stable  08-06-17  CRISIL AA-/Negative  10-03-16  CRISIL AA-/Negative   
                04-04-17  CRISIL AA-/Negative       
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Banks and Financial Institutions
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support
Rating Criteria for Hybrid Capital instruments issued by banks under Basel II guidelines
Rating criteria for Basel III - compliant non-equity capital instruments

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