| The Bank of Nova Scotia | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL A1+' rating on the certificates of deposit programme of the Indian branch operations of The Bank of Nova Scotia (Scotiabank).
The rating continues to factor in the outstanding foreign currency ratings of 'A+/Stable/A-1' of S&P Global on Scotiabank, the ultimate parent of Scotiabank India. These ratings reflect the strong market position of Scotiabank as the third-largest bank in Canada, the robust and consistent record of profitability, stronger asset quality metrics than those of global peers operating in similar economic risk regions, and diversification in terms of line of business and geographic reach. These strengths are partially offset by higher dependence of the bank on wholesale funding than its domestic peers, and exposure to risks associated with increasing investments in emerging markets (although somewhat compensated by a higher margin and a more focussed footprint).
Following the Covid-19 pandemic and the lockdowns that ensued, the Reserve Bank of India (RBI) had allowed lenders to grant a moratorium to borrowers and announced the Covid-19 related resolution framework; however, none of the borrowers of Scotiabank availed any moratorium or relief measures. The ability of Scotiabank to manage asset quality, amidst the current macro-economic environment, remains a key monitorable. The impact of the third wave of the pandemic, if and when it occurs, in terms of its spread, intensity and duration will be closely monitored. |
Analytical Approach The assessment of Indian branch operations of Scotiabank is based on the mapping of S&P's ratings on Scotiabank onto the scale of CRISIL Ratings. |
Key Rating Drivers & Detailed Description Strengths Adequate capitalisation Scotiabank India has adequate capitalisation for its scale of operations, with networth of Rs 1,885 crore, Tier-I capital adequacy ratio (CAR) of 38.8%, and overall CAR of 41.0% as on September 30, 2021 (Rs 1,865 crore, 45.8%, and 48.2%, respectively, as on March 31, 2021). The bank intends to maintain minimum CAR well above the regulatory requirement, primarily comprising Tier I capital on a steady-state basis. Scotiabank should remain committed to support Scotiabank India's operations over the medium term.
Weaknesses Modest scale of operations Scotiabank India's scale of operations is modest. As on September 30, 2021, Scotiabank India reported an asset base of Rs 7,208 crore (Rs 5,074 crore as on March 31, 2021) and operated two branches, one each in Mumbai and New Delhi. In order to rationalise the operations, the management has decided to wind up the New Delhi branch by end of fiscal 2022. This is unlikely to have any adverse impact on the business.
The bank mainly derives its revenue from short-term corporate and commercial lending, trade finance and foreign exchange. As on September 30, 2021, deposits stood at Rs 4,940 crore and net advances at Rs 1,032 crore. Deposits grew by nearly 23%, while advances grew by around 1% year-on-year as on September 30, 2021.
Size of the loan book has shrunk to Rs 1,032 crore as on September 30, 2021, from Rs 5,123 crore as on March 31, 2016. This was an outcome of the management's decision to consolidate operations to service large wholesale accounts and exit the bullion segment (which was around 57% of the portfolio as of March 2016) in line with its global strategy. Scotiabank India should remain a small player in the Indian banking space over the medium term.
Chunky asset portfolio leading to volatile asset quality Being a wholesale lender, Scotiabank India has a chunky asset portfolio with exposure to 10 corporates as on September 30, 2021. There have been no fresh slippages in the last four fiscals, while there was a recovery from an account in fiscal 2021. Gross non-performing assets (NPAs) in absolute terms declined to Rs 64 crore as on March 31, 2021, from Rs 68 crore a year earlier. Moreover, the net NPA was nil as on September 30, 2021, unchanged from the previous fiscal. The bank's gross NPAs as a proportion of gross advances stood at 5.8% as on September 30, 2021, as compared to 8.0% as on March 31, 2021 (3.6% as on March 31, 2020). |
Liquidity: Superior Liquidity remains healthy, supported by excess statutory liquidity ratio of around Rs 3,286 crore (85.0% of net demand and time liabilities) as on November 30, 2021. Asset-liability profile is well-matched, with positive cumulative mismatches in all maturity buckets as on September 30, 2021. The liquidity coverage ratio was 363% as on November 30, 2021, exceeding the regulatory requirement. Access to systemic sources of funds, such as the liquidity adjustment facility from RBI and the call money market also aid liquidity. |
Rating Sensitivity Factors Downward factors
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About the Scotia Bank Scotiabank is one of Canada's three dominant universal banks. Operations are structured around four primary business lines: Canadian banking, international banking, global wealth and insurance and global banking, and markets.
As of October 2021, the bank had adjusted assets base of Canadian dollars (CAD[[1]]) 1,185.0 billion (Rs.71.91 lakh crore) and total reported revenue YTD October 2021 of CAD 31.0 billion (Rs. 188,115 crore).
The domestic and international distribution channels are supported by branches and offices in 32 countries and around 90,000 employees.
About Scotiabank (India) Scotiabank commenced its Indian operations in 1982 by setting up a representative office in Mumbai (in 1984, the representative office was upgraded to a full-service branch). The bank has branches in Mumbai and New Delhi. Scotiabank India reported net profit of Rs 18 crore in fiscal 2021 (Rs 46 crore in fiscal 2020) on total income of Rs 263 crore (Rs 342 crore in fiscal 2020).
[1] Exchange rate as on December 21, 2021: 1CAD = Rs 58.54. |
Key Financial Indicators
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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)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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