| IndusInd Bank Limited | ||||||||||||
| 'CRISIL AA/Stable' assigned to Tier-I Bonds (Under Basel III) | ||||||||||||
| Rating Action | ||||||||||||
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| 1 crore = 10 million | ||||||||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL AA/Stable' rating to the Rs 2000 crore Tier-I bonds (under Basel III) of IndusInd Bank Ltd (IndusInd Bank) and reaffirmed its 'CRISIL AA+/CRISIL AA1/Stable/CRISIL A1+' ratings on the existing debt instruments of the bank. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has evaluated the standalone business and financial risk profile of IndusInd Bank. Once the merger process of IndusInd and BFIL is completed, CRISIL will evaluate the consolidated business and financial risk profile. |
| Key Rating Drivers & Detailed Description |
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Strengths: *Strong Capitalisation Absolute networth of IndusInd Bank increased to Rs 26,400 crore as on December 31, 2018, from Rs 22,940 crore as on December 31, 2017. CET 1, Tier-I and overall CAR were healthy at 12.8%, 13.8% and 14.2% respectively as on December 31, 2018. The large capital base, coupled with healthy asset quality, led to a better-than-peers networth coverage for net non-performing assets (NPAs) of around 26 times as on December 31, 2018. Capitalisation is further supported by a demonstrated ability to raise capital on a regular basis and comfortable accretion to networth. The bank has raised equity capital on several occasions over the past few years to support its strong growth plans. Capitalisation is likely to remain strong on account of the ability to raise capital on an ongoing basis as also due to the effect of the merger with BFIL which has higher capitalisation ratios, and will support credit growth and cover asset-side risks over the medium term. *Healthy Asset Quality The bank has also demonstrated its ability to maintain asset quality through cycles and its management is proactive in handling potential stress in the lending portfolio. Despite a five-year CAGR of around 27% in advances till March 31, 2018, gross NPAs have been significantly better than the industry average. Gross NPAs stood at 1.13% as on December 31, 2018, against 1.16% as on December 31, 2017. Although the slippages ratio is expected to increase in the short term due to stress observed in one exposure, for which adequate provision has been set aside as a proactive measure, GNPA ratio of the bank would remain comfortable and compare favourably with peers and the industry average. Going forward as well CRISIL expects the GNPA metrics for the bank to remain comfortable. Bank's restructured assets are insignificant and lowest in the industry. * Comfortable Earnings Profile The comfortable earnings profile is supported by healthy interest spreads and a diversified core fee income. The high share of fee income has been driven by significant cross-selling of products and thrust on trade and supply-chain financing, third-party product distribution, transactional services such as cash management, and foreign exchange products. Fee income as a percentage of average total assets stood at around 2.3% (annualised) for the nine months ended December 31, 2018 and has ranged between 2.3-2.6% over the past five fiscals. Almost 50% of the fee income for the bank is from distribution fees, loan processing fees and general banking fees which is a stable source of income. However, the earnings profile was impacted in the first nine months of fiscal 2019 amidst elevated credit costs as the bank proactively provided for an exposure. Consequently, the return on assets ratio dropped to around 1.6% (annualized) in the first nine months of fiscal 2019 against 2.0% to the corresponding period a year earlier. Given the expectation of slippages in the fourth quarter of fiscal 2019, RoA metrics are expected to decline, however, CRISIL expects them to still remain around 1.5%-1.6% which would remain comfortable. Post the merger with BFIL, monetisation of PSL assets would also aid fee income for the bank and also, ROA is expected to improve with increase in net interest margins. Weakness: *Average, albeit improving resource profile The proportion of low-cost current account and savings account (CASA) deposits has been improving progressively, increasing to 43.6% of total deposits as on December 31, 2018, from 42.9% a year earlier. However, the average cost of deposits of the bank remains high at around 5.8% for fiscal 2018 which is a result of the differentiated savings rate offered by the bank. Further, concentration risk in the banks depositor profile is high, albeit declining, as the top 20 depositors contributed to around 24% of total deposits. Ability to sustain the improved proportion of CASA deposits and reduce dependence on wholesale deposits, thereby managing cost of funds, will remain key monitorables. Post the merger, greater reach for IndusInd Bank would allow them access to a larger retail depositor base which is expected to support the resource profile. |
| Liquidity |
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The bank's liquidity position is comfortable with liquidity coverage ratio at 102.15% as on December 31, 2018, against the regulatory requirement of 90%. The bank's liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from the RBI, access to the call money market, and refinance limits from sources such as SIDBI and National Bank for Agriculture and Rural Development. |
| Outlook: Stable |
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CRISIL believes IndusInd Bank will maintain its robust capitalisation and healthy asset quality, while achieving an above-industry average growth in its loan book, over the medium term. The bank is also expected to sustain its comfortable earnings profile over this period. The outlook may be revised to 'Positive' in case of sustainable growth while maintaining asset quality and improving the resource profile. The outlook may be revised to 'Negative' if asset quality and earnings profile weaken. |
| About the Bank |
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IndusInd Bank is a new-generation private-sector bank; it commenced operations in 1994. The bank has a pan-India presence, with around 1558 branches and 2453 automated teller machines (ATMs) as on December 31, 2018. It also has representative office in Dubai, Abu Dhabi and London. The bank has multilateral ties with other banks, ensuring access to more than 95,000 ATMs for its customers. It has four divisions: corporate and commercial banking, consumer banking, global markets group, and transaction banking. |
| Key Financial Indicators | ||||||||||||||||||||||||||||
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Any other information
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| 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 complexity levels of the rated instrument: The distinguishing features of non-equity Tier-I capital instruments (under Basel III) are the existence of coupon discretion at all times, high capital thresholds for likely coupon non-payment, and principal write-down (on breach of a pre-specified trigger). These features increase the risk attributes of non-equity Tier-I instruments over those of Tier-II instruments under Basel III, and capital instruments under Basel II. To factor in these risks, CRISIL notches down the rating on these instruments from the bank's corporate credit rating. The rating on the bank's tier-I Bonds (under Basel III) is lower by one notch from the bank's corporate credit rating, in line with CRISIL's criteria (refer to 'CRISIL's rating criteria for Basel III-compliant instruments of banks'). The factors that could trigger a default event for non-equity Tier-I capital instruments (under Basel III), resulting in non-payment of coupon, include: i) the bank exercising coupon discretion, ii) inadequacy of eligible reserves to honour coupon payment if the bank reports low profit or a loss, or iii) the bank breaching the minimum regulatory common equity Tier (CET) I ratio. Moreover, given their additional risk attributes, the rating transition for non-equity Tier-I capital instruments (under Basel III) can potentially be higher than that for Tier-II instruments. | |||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Instrument(s) | |||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Links to related criteria |
| Rating Criteria for Banks and Financial Institutions |
| CRISILs Criteria for rating short term debt |
| Rating criteria for Basel III - compliant non-equity capital instruments |
| For further information contact: | ||||||
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