| TJSB Sahakari Bank Limited | ||||
| Rating Reaffirmed | ||||
| Rating Action | ||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings on short-term bank facilities of TJSB Sahakari Bank Limited (TJSB) reflects the adequate capital position, stable earnings profile and adequate resource profile of the bank. These strengths are partially offset by a concentrated loan portfolio among micro, small and medium enterprises (MSMEs), moderate asset quality metrics and exposure to risks inherent in the urban cooperative banking sector.
During fiscal 22, advances grew by ~19% to Rs 6723 crore on account of higher demand of credit from MSME segment. As of September 2022, the banks reported gross advances of Rs 6361 crore. On the asset quality front, gross non- performing assets (GNPAs) of the bank improved to 3.9% as on March 31, 2022, improved from 4.23% as on March 31, 2021, due to recoveries and upgradations. Coming to the first half of fiscal 2023, the bank faced asset quality issues in few accounts and as a result GNPA increased to 5.9% as on September 30, 2022. CRISIL Ratings also understands that situation has improved during October and November 2022 and the bank has been able to recover from some of these accounts. Therefore, the gross NPAs are expected to remain below 5% by end of fiscal 2023.
TJSB’s capital adequacy has remained comfortable for its current scale of operations. As on September 30, 2022, the Tier 1 and over all capital adequacy ratio of the bank stood at 14.6% and 17.0%, respectively (12.9% and 15.3% as on March 31, 2022). Further, on December 1, 2022, RBI release new regulatory framework for ‘Urban Co-operative Banks’. As per this framework, all the co-operative banks will have to achieve a CAR of 10% by the financial year ended March 31, 2024, 11% by March 31, 2025; and 12% by March 31, 2026.
On earning side, the bank’s earnings profile remained stable with return on assets (RoA) at 1.0% in fiscal 2022 as against 1.1% in fiscal 2021. CRISIL Ratings also notes that the Bank has an aggressive provisioning policy with more than 95% of gross NPAs being provided. TJSB’s outstanding deposit base also increased by around 11% to Rs 13,336 crore as on March 31, 2022, from Rs 12,049 crore as on March 31, 2021. As on September 30, 2022, the bank has deposit base of Rs 13089 crore with current account and savings account proportion (CASA) of 29.71%. |
Analytical Approach To arrive at its rating, CRISIL Ratings has evaluated the standalone business and financial risk profiles of TJSB Sahakari Bank Limited |
Key Rating Drivers & Detailed Description Strengths:
TJSB’s capital adequacy remains comfortable for the current scale of operations. As on September 30, 2022, the Tier 1 and over all capital adequacy ratio of the bank stood at 14.6% and 17.0%, respectively (12.9% and 15.3% as on March 31, 2022). Bank’s Tier 1 coverage for unprovided weak assets (includes GNPAs, security receipts and restructured advances) was high at 26.6 times as on March 31, 2022, improved from 11.9 times a year earlier. The bank’s coverage for weak assets was high, as it has limited net non-performing assets usually. Being a cooperative bank, it is not allowed to raise capital from the open market and has to remain dependent on the capital raised only from its members. Despite this, the bank has been able to maintain overall CAR of 14-15% in the last five years.
The earnings profile remained stable with return on assets (RoA) at 1.0% in fiscal 2022 as against 1.1% in fiscal 2021. As on September 30, 2022, ROA stood at 1.0% (on annualized basis). The profitability of the bank remains better than the average earnings of cooperative and private sector banks, which have greater focus on the MSME segment. Higher profitability continues to be driven by the relatively higher yields from MSMEs, traders and other small borrowers. Further, banks have been able to maintained its operating costs at a stable level of 2.1% of average funds deployed in fiscal 22. Bank has also been able to reduce cost of borrowing to 4.6% in fiscal 22 from 5.3% a year ago CRISIL Ratings also notes that the Bank has an aggressive provisioning policy with more than 95% of gross NPAs being provided. Despite the same, RoA has been stable in the range of 0.9 to 1.1% over the last five years.
TJSB’s outstanding deposit base also increased by around 11% to Rs 13,336 crore as on March 31, 2022, from Rs 12,049 crore as on March 31, 2021. As on September 30, 2022, the bank has deposit base of Rs 13089 crore. Bank’s CASA has improved to 30.3% in fiscal 22 from 28.7% a year ago. For half year ended September 30, 2022 bank’s CASA stood at 29.71%. The bank has low reliance on bulk deposits (only ~13-14% is bulk deposit, remaining ~86-87% is other than bulk deposit), in addition to this around 54% of the term deposits are below ticket size of Rs 15 lakh. The bank’s top 20 depositors comprise ~6.5% of the overall deposits. Its credit to deposit (CD) ratio was comfortable at around 48.60% as on September 30, 2022, against 45.7% a year earlier. The bank has remained typically conservative in terms of asset growth; as a result, the CD ratio has remained at below 53% in the last five years.
Weaknesses:
On the asset quality front, gross non- performing assets (GNPAs) of the bank improved to 3.93% as on March 31, 2022, from 4.23% as on March 31, 2021. This improvement was primarily due to recoveries and upgradations which stood 0.30% of opening gross NPAs of the bank. Overall, stressed assets (includes gross net performing assets, security receipts and restructured standard assets) stood at 5.21% of gross advances as on March 31, 2022. (7.2% as on March 31, 2021)
Coming to the first half fiscal 2022, the bank faced asset quality issues due to slippages in few big accounts. As a result, the GNPA of the bank increased to around 5.9% as on September 30, 2022. CRISIL Ratings also understands that situation has improved during October and November 2022 period and the bank has been able to recover from some of these accounts. The GNPA position is estimated to be less than 5% in the third quarter of fiscal 2023. Nevertheless, comfort can be drawn from the aggressive provisioning policy followed by TJSB: the bank provides more than 95% on its gross NPAs, because of which the net NPAs stood at NIL as on March 31, 2022. CRISIL Ratings, will continue to monitor closely the asset quality performance of the bank over near to medium term.
TJSB’s portfolio is geographically and sectorally concentrated towards SMEs and MSMEs in Nagpur, Mumbai, Nashik and Pune, with around 87% of the total portfolio derived from these cities. Manufacturing advances are 37%, while the remaining is comprised of loans to traders, services and small business enterprises. Furthermore, the top 50 exposures account for 25-30% of the total advances book on a steady state basis. The high level of concentration exposes the bank to asset quality pressures. This is because SMEs and MSMEs remain more vulnerable to economic slowdowns than large corporate entities given their relatively weak financial risk profiles, customer concentration in revenue and dependence on a single line of operations.
Given the regulatory framework, organisational structure and track record of operations, urban cooperative banks in India have certain inherent risks, such as lack of market access for raising capital, dual control of state or central governments and the Reserve Bank of India and exposure to reputational risks. |
Liquidity: Adequate The adequate liquidity is driven by the comfortable asset liability management profile. The bank has a ‘scheduled’ category status; which gives it access to systemic liquidity. The bank has no negative cumulative mismatch over the one-year bucket. Furthermore, it maintains liquidity in the form of investments in excess statutory liquidity ratio, government financial institutions and liquid funds of at least 10-11% on a steady state basis. Additionally, the bank’s CD ratio was comfortable at around 50% as on as on Sep 30, 2022. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company TJSB was incorporated in 1972 by Mr BK Patwardhan, a chartered accountant, to extend credit services to SMEs. The bank has 136 branches across Maharashtra (Thane, Mumbai, Navi Mumbai, Kolhapur, Nashik and Pune), Karnataka, Goa, Gujarat and Madhya Pradesh.The bank had 61534 regular members as on March 31, 2022. It received the scheduled bank status in 1996 and became a multi-state scheduled cooperative bank in November 2008. TJSB is a Category–I authorised dealer in foreign exchange and has been operating in this segment since July 2010. In fiscal 2008, it acquired two cooperative banks, Navjeevan Nagri Sahakari Bank Ltd, Pune, and Shree Sadguru Jangli Maharaj Sahakari Bank, Chinchwad, both in Maharashtra. |
Key Financial Indicators
^As per Off site surveillance statement (OSS) which are unaudited |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 27-Dec-22 in line with the lender-wise facility details as on 12-Aug-21 received from the rated entity.
Criteria Details
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