Oriental Bank of Commerce

Transcription

1 Oriental Bank of Commerce August 02, 2017 Ratings Facilities Basel III Compliant Tier II Bonds Amount (Rs. crore) 3,000 Lower Tier II Bonds 1,025 Upper Tier II Bonds 700 Perpetual Tier I Bonds 600 Basel III Compliant Additional Tier I Bonds Total Lower Tier II Bond ,325 (Rupees Six Thousand Three Hundred and Twenty Five crore only) *the rating stands withdrawn as the said instrument has been redeemed Details of instruments/facilities in Annexure-1 Rating 1 (Double A Minus; Outlook: ) (Double A Minus; Outlook: ) CARE A+; (Single A Plus; Outlook: ) CARE A+; (Single A Plus; Outlook: ) CARE A; (Single A; Outlook: ) Rating Action CARE AA; (Double A; Outlook: ) CARE AA; (Double A; Outlook: ) (Double A Minus; Outlook: ) (Double A Minus; Outlook: ) CARE A+; (Single A Plus; Outlook: ) Withdrawn* CARE has rated the aforesaid Upper Tier II Bonds and the Perpetual Bonds (under Basel II) one notch lower than the Lower Tier II Bonds in view of their increased sensitiveness to the bank s Capital Adequacy Ratio (CAR), capital-raising ability and profitability during the long tenure of the instruments. The ratings for these hybrid instruments factor in the additional risk arising due to the existence of the lock-in clause in these instruments. Any delay in payment of interest/principal (as the case may be) following the invocation of the lock-in clause, would constitute an event of default as per CARE s definition of default and as such, these instruments may exhibit a somewhat sharper migration of the rating compared to conventional subordinated debt instruments. CARE has rated the aforesaid Basel III Compliant Tier-I Perpetual Bonds after taking into consideration its key features as below: The bank has full discretion at all times to cancel coupon payments. The coupon is to be paid out of current year profits. However, if the current year s profits are not sufficient, the coupon may be paid subject to availability of sufficient revenue reserves and / or credit balance in profit and loss account, provided the bank meets the minimum regulatory requirements for Common Equity Tier I [CET I], Tier I and Total Capital Ratios at all times and capital buffer frameworks as prescribed by the Reserve Bank of India [RBI]. The instrument may be written-down upon CET I breaching the pre-specified trigger of 5.5% before March 31, 2019, and 6.125% on and after March 31, 2019, or written-off / converted into common equity shares on occurrence of trigger event called point of non-viability (PONV). The PONV trigger shall be determined by RBI. Any delay in the payment of interest/principal (as the case may be) due to invocation of any of the features mentioned above would constitute as an event of default as per CARE s definition of default and as such these instruments may exhibit a somewhat sharper migration of the rating compared with the conventional subordinated debt instruments. Tier II Bonds under Basel III are characterized by a Point of Non-Viability (PONV) trigger due to which the investor may suffer a loss of principal. PONV will be determined by the Reserve Bank of India (RBI) and is a point at which the bank may no longer remain a going concern on its own unless appropriate measures are taken to revive its operations, and thus 1 Complete definition of the ratings assigned are available at and other CARE publications 1 CARE Ratings Limited

2 enable it to continue as a going concern. In addition, the difficulties faced by a bank should be such that these are likely to result in financial losses and raising the Common Equity Tier I capital of the bank should be considered as the most appropriate way to prevent the bank from turning non-viable. In CARE s opinion, the parameters considered to assess whether a bank will reach the PONV are similar to the parameters considered to assess the rating of Tier II instruments even under Basel II. CARE has rated the Tier II Bonds under Basel III after factoring in the additional feature of PONV. Detailed Rationale & Key Rating Drivers The revision in the ratings assigned to the various instruments of Oriental Bank of Commerce (OBC) takes into account the significant deterioration in the asset quality and profitability of the bank. The ratings continue to factor in the capital support and majority ownership by the Government of India (GoI), its long track record of operations, adequate capitalization levels, comfortable resource profile and moderate liquidity profile. Going forward continued ownership and support from GoI and the bank s ability to improve its asset quality and profitability would be the key rating sensitivities. Outlook: The outlook on the ratings is as CARE expects the stress on the asset quality of the bank to continue in the current financial year which would adversely impact its profitability in the short-to-medium term. The outlook may be revised to Stable if the deterioration in asset quality is arrested with sustained improvement in profitability. Detailed description of the key rating drivers Key Rating Strengths Majority ownership of GoI and long track record: Government of India is the major shareholder in OBC with a stake of 58.38% stake as on June 30, The rating factors in the support that the bank is expected to get from GoI. OBC is a nationalized bank of significant size which has a long track record of operations of over 70 years with a pan India network. Adequate Capitalization Level: OBC s capitalization profile remained adequate as on March 31, Total CAR and tier-i CAR remained stable at 11.64% and 8.88%, respectively as on March 31, 2017 from 11.76% and 9.10% respectively, as on March 31, The Common Equity Tier I (CET I) ratio stood at 7.59% as on March 31, 2017 as compared to 8.52% as on March 31, Comfortable resources profile: As on March 31, 2017, total borrowed funds stood at Rs. 2,33,932 crore with deposits accounting for 93.8% (PY: 95.4%) and borrowings accounting for 6.2%. The deposits grew by 5% y-o-y to Rs.219,339 crore as on March 31, The cost of borrowed funds (deposits +external borrowings) reduced to 5.97% in FY17 from 6.89% in FY16 as the average cost of deposits declined to 5.97% in FY17 from 6.81% in FY16. The CASA ratio improved to 30.5% as on March 31, 2017 from 25.22% as on March 31, Key Rating Weaknesses Stressed asset quality parameters: The asset quality witnessed significant deterioration during FY17, the total slippages amounted to Rs.12,222 crore (PY: Rs.10,371 cr) resulting into a slippage ratio of 8.8% (PY: 7.4%). The significant increase in NPA has resulted in deterioration in the asset quality parameters as witnessed by Gross NPA ratio of 13.73% as on March 31, 2017 as against Gross NPA ratio of 9.57% as on March 31, The Net NPA ratio deteriorated to 8.96% as on March 31, 2017 (PY: 6.70%). Furthermore, net NPAs as a percentage of tangible net worth stood at 111.4% as on March 31, 2017, compared with 72.32% as on March 31, Iron & steel sector was the major contributor to gross NPA followed by Infrastructure and Textile sectors. Deterioration in earnings profile: During FY17, though the net interest income decreased by 8.65% y-o-y to Rs.4,909 crore, however, due to increase in non-interest income by 56.6% y-o-y the total income remained at similar levels of Rs.21,188 crore. The bank reported operating profit of Rs.4,170 crore during FY17 as compared to Rs.3,682 crore for FY16. Despite increase in operating profit, the significant increase in provisioning to Rs. 5,264 crore during FY17 as against Rs.3,526 crore during FY16 resulted the bank reporting net loss of Rs.1,094 crore during FY17 as against a PAT of Rs.156 crore during FY16. Analytical approach: Standalone 2 CARE Ratings Limited

3 Applicable Criteria Criteria on assigning Outlook to Credit Ratings CARE s Policy on Default Recognition Bank - CARE s Rating Methodology For Banks Financial Sector Financial Ratios About the Company OBC was established in Lahore on February 19, 1943, by Late Rai Bahadur Lala Sohan Lal, the first Chairman of the Bank. The registered office of the Bank was shifted to Delhi in The Bank was nationalized on April 15, 1980 and became a public sector bank. The majority stakeholder of OBC is Government of India (GoI), which held 58.38% stake in the bank as on June 30, As on March 31, 2017, the Bank operated through a network of 2,376 branches and 2,621 ATMs across India. During FY17, the bank opened 25 new branches and installed 55 new ATMs. As on March 31, 2017, the bank had 21,552 employees (PY: 21,827). The operations of the bank are managed by experienced team headed by Mr. Mukesh Kumar Jain, CEO and MD who was appointed in July Brief Financials (Rs. crore) FY16 (A) FY17 (A) Total income 21,935 21,188 PAT 156-1,094 Total Assets 2,38,261 2,51,616 Net NPA (%) ROTA (%) A: Audited Status of non-cooperation with previous CRA: Not applicable Any other information: Not applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Mr Gaurav Dixit Tel: Mobile: gaurav.dixit@careratings.com **For detailed Rationale Report and subscription information, please contact us at About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. 3 CARE Ratings Limited

4 Annexure-1: Details of Instruments/Facilities Name of the Date of Instrument Issuance Coupon Rate Maturity Date Size of the Issue (Rs. crore) Rating assigned along with Rating Outlook Bonds-Lower Tier II Withdrawn Bonds-Upper Tier II % CARE A+; Bonds-Perpetual Bonds % Perpetual CARE A+; Bonds-Perpetual Bonds % Perpetual CARE A+; Bonds-Lower Tier II % Bonds-Upper Tier II % CARE A+; Bonds-Lower Tier II % Bonds-Tier II Bonds % Bonds-Tier I Bonds % Perpetual CARE A; Bonds-Tier II Bonds % Bonds-Tier II Bonds % Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities Current Ratings Type Amount Rating Outstanding (Rs. crore) Date(s) & Rating(s) assigned in Rating history Date(s) & Rating(s) assigned in Bonds-Lower Tier II LT )Withdrawn 2. Bonds-Upper Tier II LT )Withdrawn 3. Bonds-Lower Tier II LT ; 4. Bonds-Upper Tier II LT CARE A+; - 1) - 5. Bonds-Perpetual Bonds LT )Withdrawn - 6. Bonds-Perpetual Bonds LT CARE A+; 7. Bonds-Perpetual Bonds LT CARE A+; 8. Bonds-Lower Tier II LT CARE AA-; 9. Bonds-Upper Tier II LT CARE A+; - 1) - - 1) - - ; - 1) - Date(s) & Rating(s) assigned in Date(s) & Rating(s) assigned in CARE Ratings Limited

5 10. Bonds-Lower Tier II LT CARE AA-; 11. Bonds-Tier II Bonds LT CARE AA-; 12. Bonds-Tier I Bonds LT CARE A; 13. Bonds-Tier II Bonds LT CARE AA-; 14. Bonds-Tier II Bonds LT CARE AA-; - ; - ; - 1)CARE A+; 2)CARE A+ (30-Sep-16) 3)CARE A+ - ; - ; 3)CARE AA (23-Jun-16) + + 1)CARE A (13-Jan-15) CARE Ratings Limited

6 CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: Cell: meenal.sikchi@careratings.com ankur.sachdeva@careratings.com Ms. Rashmi Narvankar Mr. Saikat Roy Cell: Cell: rashmi.narvankar@careratings.com saikat.roy@careratings.com CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai Tel: Fax: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad Cell: Tel: deepak.prajapati@careratings.com BENGALURU Mr. V Pradeep Kumar Unit No , 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore Cell: Tel: , pradeep.kumar@careratings.com CHANDIGARH Mr. Anand Jha SCF No , First Floor, Phase 11, Sector 65, Mohali Chandigarh Cell: Tel: / 09 anand.jha@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai Cell: Tel: / pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore Tel: / pradeep.kumar@careratings.com JAIPUR Mr. Nikhil Soni 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur Cell: Tel: / 14 nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata Cell: Tel: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi Cell: Tel: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune Cell: Tel: pratim.banerjee@careratings.com CIN - L67190MH1993PLC HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, , Himayat Nagar, Hyderabad Cell : Tel: ramesh.bob@careratings.com 6 CARE Ratings Limited