| Syndicate Bank | ||||
| Rating placed on 'Watch Positive' | ||||
| 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 placed its rating on debt instruments of Syndicate Bank on 'Rating Watch with Positive Implications'. CRISIL has also withdrawn its rating on the Lower Tier-II bonds (under Basel II) of Rs 500 crore and Perpetual Tier-I Bonds (Under Basel II) of Rs 773 crore (see Annexure 'Details of rating withdrawn' for details) on confirmation from the debenture trustee that these instruments have been fully redeemed. The rating withdrawal is in line with CRISIL's policy. |
| Analytical Approach |
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For arriving at the rating, CRISIL has considered the standalone business and financial risk profiles of Syndicate Bank and has factored in the support that the bank is likely to receive from GoI. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Strong expectation of support from GoI: Strong support is expected from the government, both on an ongoing basis and in the event of distress. That's because GoI is both the majority shareholder in PSBs and the guardian of India's financial system. The stability of the banking sector is of prime importance to the government, given the criticality of the sector to the economy, the strong public perception of sovereign backing for PSBs, and the 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 the government to support PSBs. It infused Rs 2,839 crore in Syndicate Bank in fiscal 2018, Rs 728 crore in September 2018, and Rs 1,632 crore in December 2018. * Adequate capitalisation: Tier-I and overall CAR (under Basel III) were 10.95% and 13.78%, respectively, as on September 30, 2019 (11.36% and 14.23%, respectively, as on March 31, 2019). However, the networth coverage for net NPAs remained low at 1.3 time as on September 30, 2019 (0.9 time as on September 30, 2018), given asset quality pressure. Nevertheless, capitalisation is likely to remain adequate over the medium term on account of continued government support, which will help to meet regulatory capital requirements. Weaknesses: * Weak asset quality: Gross NPAs were high at 11.5% as on September 30, 2019 (11.4% as on March 31, 2019). Slippages to NPAs, as a percentage of opening net advances, declined but remained high at 4.4% (on an annualised basis) in the six months through September 2019 (6.8% for fiscal 2019). However, the bank has increased the focus on recoveries (including through the IBC route) and resolving asset quality challenges. Asset quality is likely to gradually improve over the medium term, but ability to arrest slippages and improve recovery will remain key rating monitorables. * Modest earnings: There was a loss of Rs 729 crore for the six months through September 2019 as compared with a loss of Rs 2,824 crore for the corresponding period in the previous fiscal, primarily because of high provisioning expense. This is likely to remain high over the next few quarters, given the ageing of NPAs and limited recoveries. The net interest margin (NIM) increased to 2.68% (annualised) for the six months through September 3019 from 2.42% for fiscal 2019. Return on assets (RoA) was a negative 0.5% (annualised) for the period (a negative 0.8% for fiscal 2019). Profitability should remain modest in the near term on account of high credit cost. However, as the book starts growing and with improvement in asset quality, profitability is expected to improve. |
| Liquidity Superior |
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Liquidity is supported by a sizeable retail deposit base that forms a significant part of the total deposits. Liquidity coverage ratio was 136.89% as on September 30, 2019, against the regulatory requirement of 100%. The excess statutory liquidity was Rs 3,461 crore (1.40%) as on that date. Liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from the Reserve Bank of India, access to the call money market, and refinance limits from sources such as National Housing Bank and National Bank for Agriculture and Rural Development. |
| Rating Sensitivity factors |
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Upward factors: * Sustained improvement in asset quality and profitability, leading to RoA of over 0.75% on a steady-state basis. * Completion of the proposed amalgamation with Canara Bank. Downward factors: * More-than-expected deterioration in asset quality, thereby impacting earnings * Sustained decline in CARs below minimum regulatory requirements (including CCB which was Tier I CAR of 9.5% and overall CAR of 11.5% as on March 31, 2020) |
| About the Bank |
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Syndicate Bank was set up in 1925. As on September 30, 2019, the bank had 4062 branches (including a branch in London), global advances of Rs 2,21,638 crore, and global deposits of Rs 2,59,443 crore. |
| Key Financial Indicators | ||||||||||||||||||||||||||||
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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) | ||||||||||||||||||||||||||||||
*Yet to be issued | ||||||||||||||||||||||||||||||
| Annexure - Details of Rating Withdrawn | ||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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