| Kerala State Co-Operative Agricultural and Rural Development Bank Limited | ||||
| Rating outlook revised to 'Negative'; Rating reaffirmed | ||||
| Rating Action | ||||
| ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its rating outlook on the long- term bank facility of Kerala State Co-Operative Agricultural and Rural Development Bank Ltd (KSCARDB) to ‘Negative’ from ‘Stable’ while reaffirming the rating at ‘CRISIL BB+’.
The revision in outlook primarily factors in deterioration in KSCARDB’s asset quality primarily during the first half of fiscal 2022. Since the PCARDSs operates in Kerala, collections and operations were significantly impacted due state and local level lockdowns during second wave of COVID-19. The bank reported gross non-performing assets (GNPA) of around 40% as of September 30, 2021 as compared with NIL GNPA as on March 31, 2021. The portfolio of bank mainly involves loans to primary cooperative agricultural and rural development banks (PCARDBs), which in-turn, lend to borrowers who are linked with rural and agricultural activities. Further, borrowers of the PCARDBs typically have modest means of income and the second wave of the pandemic had overall impact during the first half of fiscal 2022. This has led to constricted ability of primary banks for repayment at the state bank level. Nevertheless, post ease of lockdown restrictions, things have started improving, CRISIL Ratings understands that overall overdue position of the bank stood below 20% as of November 2021. Therefore, the ability of the bank to keep improving its overdue position as well as GNPAs will remain key monitorable.
As far as restructuring is concerned, the bank has restructured around Rs 950 crore worth accounts which stood ~12% of their overall outstanding book as on March 31, 2021. This restructuring has resulted in NIL GNPA of bank as on March 31, 2021. The bank has made provision of Rs 134 crore against these restructured assets.
In term of collection efficiencies, KSCARDB has witnessed a decline in overall collection efficiency during the first half initial months of fiscal 22. During April to Sep 2021, the cumulative collection efficiency stood at 58%. However, post Sep 2021, this has been improving. As on Nov 2021, the bank has made significant improvement in collections with 81% of collection efficiencies as primary banks are able to recover from the end customers. While the bank has made considerable process in recovery from overdue accounts, its ability to continue with the same pace of recovery will be a key monitorable.
The rating continues to reflect an adequate resource profile and established position as the apex state cooperative bank catering to rural financing needs in Kerala. These strengths are partially offset by weak asset quality and exposure to risks inherent in the rural cooperative sector. |
Key Rating Drivers & Detailed Description Strengths: Adequate resource profile; heavy reliance on NABARD The resource profile is adequate, with majority resources (over 90% of total borrowings) available from NABARD at a low cost (below 8% per annum). This funding is received as refinance for loans extended to the primary banks for their lending requirement. Most of the loans availed from NABARD are against Kerala state government guarantee. The average cost of borrowing was around 7.3% for fiscal 2021 reduced from 7.3% from fiscal 21. From April 21- till date, the bank has received Rs 1350 crore refinance lines from NABARD at nominal interest rate of between 2.9%-6.65%.
Established position as the apex state cooperative bank catering to rural financing needs in Kerala KSCARDB enjoys a niche position among banks providing agricultural loans in Kerala, as it is the apex state cooperative bank for long-term agricultural financing in Kerala. It finances the PCARDBs at the taluka(subdivision of district) level which in turn finance the end borrowers for their long-term financial requirements.
The bank focuses on loans for farm and land development through its wide network of 76 PCARDBs across the state. Its position is supported by its role as the sole schematic lending vehicle for NABARD in Kerala. Furthermore, it is one of the top performing state co-operative agricultural rural development banks (SCARDBs) in India.
Weakness: Weak asset quality Gross NPAs increased to 40% as on Sep 30, 2021, from 0%as on March 21. The borrowers of the PCARDBs typically have modest means of income. The second wave of covid 19 affected their income during the first half of fiscal 21. This has led to constricted ability of primary banks for repayment at the state bank level.
Further, the lockdown impacted collections in the first half of fiscal 2021. The overall collections stood at 58% in April-Sep 2021. Post Sep 21, the bank has witnessed improvement in collection efficiency and as on Nov collections stood at 81%. The collections are expected to pick up from current levels in the coming months of fiscal 2022.The bank has demonstrated the ability to recover its dues in the past and has not faced any material credit losses during the past five years.
Exposure to risks inherent in the rural cooperative sector The bank is part of the rural co-operative sector, which is susceptible to various political, social and economic challenges. SCARDBs are not directly under the control of the Reserve Bank of India (RBI). They are subject to weaker prudential norms than those applicable for commercial banks. Furthermore, the low market share of SCARDBs in the financing system makes them systematically less important than scheduled commercial banks. In addition, SCARDBs are subject to geographical concentration risk as they operate within one state.
Given the regulatory framework, organisational structure, and track record of operations, such banks face inherent risks such as lack of market access for raising capital and exposure to reputational risks. These challenges have impacted the smooth running of various cooperative societies and banks. |
Liquidity: Adequate The total liquid balance (including cash and liquid investments) stood at Rs 850 crore as on Nov 30, 2021. The bank has liquidity cover of 6.5 times for repayments over the next 6 months (Assuming 60% collection efficiency of billings for demand). The bank has also received Rs 1362 crore in refinance lines from NABARD and also expected to receive funds worth Rs 250 crore in fourth quarter of fiscal 21. |
Outlook: Negative CRISIL Ratings believes KSCARDB will benefit from its market position and business risk profile over the medium term. Nevertheless, the revision in outlook primarily factors in deterioration in KSCARDB collection efficiency, which led to pressure on its asset quality metrics during first half fiscal 2022. |
Rating Sensitivity Factors Upward factors
Downward factors
|
About the Bank Set up in 1956, KSCARDB (formerly, Kerala Co-operative Central Land Mortgage Bank) caters to the long-term agricultural credit needs of farmers in Kerala. It is the apex financial institution for 76 PCARDBs functioning at the taluka level. The bank refinances long-tenure agricultural and related loans for a tenure of 5-15 years for ticket sizes of Rs 0.5 lakh to Rs 1 crore. The asset book includes rural housing loans, enterprise loans and scheme loans. |
Key Financial Indicators
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||
|
This Annexure has been updated on 22-Dec-2021 in line with the lender-wise facility details as on 9-Sep-2021 received from the rated entity.
Criteria Details
|