On a review of the performance of the Bank, Brickwork Ratings has reaffirmed the Rating 1 for the following instruments of Andhra Bank.

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1 Annual Surveillance - Rating Rationale Brickwork Ratings reaffirms the Bond Ratings for Andhra Bank s Upper Tier II issue aggregating 1000 Cr, Perpetual Tier I issue of 200 Cr and Lower Tier II issue of 320 Cr. On a review of the performance of the Bank, Brickwork Ratings has reaffirmed the Rating 1 for the following instruments of Andhra Bank. Instruments Amount Rating ( Cr) Assigned/ Reaffirmed/Revised Rating History Previous Rating As on Lower Tier II 320 Cr (out of 500 Cr) BWR AA+ (Negative) Reaffirmed March 2015 BWR AA+ (Negative) February 2014 Upper Tier II 1000 Cr BWR AA (Negative) Reaffirmed March 2015 BWR AA (Negative) February 2014 IPDI 200 Cr BWR AA (Negative) Reaffirmed March 2015 BWR AA (Negative) February 2014 Brickwork Ratings have relied on the Bank s published results of FY 14 and up to Q3 FY15, publicly available information and other information/clarifications provided by the Bank. The rating factors Government of India s equity stake (60.14%) and its continued support to the Bank, comfortable capital level and continued stressed asset quality indicators. It also factors satisfactory credit growth as also improvement in Provision Coverage ratio, net interest margin and the CASA ratio during the review period. Financial Performance: Total Business of the Bank increased from 2,23,934 Cr in FY13 to 2,52,494 Cr in FY14, registering an increase of 12.75% over the last year. Deposits have grown from 1,23,796 Cr in FY13 to 1,41,485 Cr during FY14 registering a growth of 14.58% and advances have grown from 1,00,138 Cr in FY13 to 1,10,649 Cr during FY14, a growth of 10.50%. The Bank s CASA deposits have marginally declined from 25.65% in FY13 to 24.81% in FY14. 1 Please refer to for definition of the Ratings Apr 2015

2 During FY14, the Bank s Loan growth was primarily driven by strong growth in agriculture (23.2% YoY growth), retail credit (15.2% YoY growth), MSME (8.6% YoY growth) and corporate & mid corporates (5.9% YoY growth). The Bank is progressively shifting its portfolio towards high yielding collateral based retail & MSME products from low yield corporate loans. The Bank proposes to increase focus on retail assets portfolio (mainly in Housing loans, Non-agriculture gold loans & auto loans) going forward. As per industry-wise classification, highest exposure is to the Power sector of 11.2%, followed by Housing Loans of t 8.73%. The management sees no major stress in Power sector. Though there is delay in repayment of such loans, the Bank has been able to reduce the overdue. As on March 2014, the Bank has reported a capital adequacy ratio of 11.18% out of which Tier I capital adequacy ratio stood at 8.25% as per BASEL - II. And, as per BASEL III, the capital adequacy ratio for FY14 stood at 10.78%, out of which the Common Equity Tier I at 7.96%. Total Net Income for Bank during FY 14 increased to 5,070 Cr recording a growth of 5.54% on account of increase in non-interest income from treasury by 65% and noninterest income from core-operations by 12.2%. Net Interest Income for FY14 declined by 0.53% to 3,737 Cr. Higher provisioning has further curtailed the net profit growth to that extent; net profit declined by 66% YoY to 4.16% YoY decline to 1,289 Cr in FY Cr for FY14 as compared to Net interest margin in FY14 stood at 2.76% as against 3.21% in FY13. Gross NPA level increased significantly from 3.71% in FY13 to 5.29% in FY14. The Bank s provision coverage ratio improved from 49.57% in FY13 to 52.55% in FY14. The restructured assets have increased by 11.27%, from 9,692 Cr in FY13 to 10,784 Cr in FY14 9MFY15 Performance: The total business in 9MFY15 stood at 2,60,841 Cr (11.31% YoY growth), with its total deposits at 1,42,078 Cr (7.88% YoY growth) and total advances at 1,18,763 Cr (15.7% YoY growth). The Bank s CASA deposits improved to 25.89% during 9MFY15 as compared to 23.56% in 9MFY Apr 2015

3 There has been an improvement in the Net Interest Income by 13.63% YoY from 2787 Cr in 9MFY14 to 3,167 Cr in 9MFY15. The non-interest income has increased by 6.63% from 996 Cr in 9MFY14 to 1062Cr in 9MFY15. Net Interest Margin improved from 2.54% in Q3FY14 to 3.43% in Q3 FY15, primarily on account of increase in yield on advances from 11.15% in Q3FY14 to 11.66% in Q3 FY15 and marginal decline in cost of deposits from 7.84% in Q3FY14 to 7.66% in Q3 FY15. The retail Credit increased by 22.62% from 15,142 Cr in Dec 2013 to 18,567 Cr in Dec 2014, contributed by 45.76% growth in Non-Agricultural Gold Loans and 27.63% in Housing Loans. The net profit has improved by 30.68% from 347 Cr in Dec 2013 to 453 Cr in Dec Return on Assets improved from 0.12% in Q3FY14 to 0.49% in Q3 FY15 and Return on Average Net worth increased from 2.14% in Q3FY14 to 9.05% in Q3 FY15 respectively. Asset quality of the Bank has deteriorated during the review period. Gross NPA increased from 5.55% in Dec 2013 to 5.99% in Dec 2014 and Net NPA increased from 3.65% in Dec 2013 to 3.70% in Dec The restructured assets have increased from 10,222 Cr in Dec 2013 to 11,222 Cr in Dec The Gross NPA + Restructured Assets indicate increased stress from 13.56% in FY13 to 15.04% in FY14, which further went up to 15.44% in Dec However, the provision coverage ratio has improved from 45.84% in Dec 2013 to % in Dec NPA in the Large and Mid-Corporate sector continues to remain at more than 7%, although marginally reduced from 7.99% in Dec 2013 to 7.40% in Dec NPA in Agriculture sector has increased from Rs.524 Cr in Dec 2013 to Rs.1305 Cr in Dec 2014, thereby indicating a sharp increase from 2.81% in Dec 2013 to 6.42% in Dec NPA in MSME have also increased from 4.05% in Dec 2013 to 4.96% in Dec 2014, whereas the retail credit marginally improved from 2.14% in Dec 2013 to 2.02% in Dec The Bank s capital adequacy ratio has reduced from % in Dec 2013 to 10.51% in Dec 2014 with Common Equity Tier I capital ratio marginally reducing from 7.96% in Dec 2013 to 7.45 % in Dec Apr 2015

4 Key Parameters Total Deposits (in Audited FY 2013 Audited FY2014 Limited 9MFY14 Limited 9MFY15 1,23,796 1,41,845 1,31,700 1,42,078 Deposit Growth (in %) 16.95% 14.58% 17.12% 7.88% Total Advances (in 1,00,138 1,10,649 1,02,644 1,18,763 Advances Growth (in %) 18.25% 10.50% 13.68% 15.70% Total Business(in 2,23,934 2,52,494 2,34,344 2,60,841 Business Growth(in %) 17.53% 12.75% 15.59% 11.31% Credit / Deposit Ratio (%) 80.94% 78.02% 77.96% 83.62% CASA Deposits (in 31,759 35,168 31,031 36,778 Growth in CASA Deposits (%) 13.64% 10.79% 6.04% 18.52% CASA Ratio (%) 25.65% 24.81% 23.56% 25.89% Total Investments (in 37,632 45,356 44,817 41,868 Investments Growth(in %) 27.01% 20.53% 33.41% -6.58% CRAR(BASEL-III) % 11.04% 10.51% CET I (in %) % 7.96% 7.45% Gross NPA (in Net NPA Gross NPA % Net NPA % PCR % Cost to Income Ratio % RoE % RoA % Net Interest Margin The Bank s Capital adequacy ratio as per BASEL- II for FY13 is 11.76% * As per BWR calculations Apr 2015

5 Rating Outlook: Asset quality of the Bank has been affected during the review period. The amount under restructured accounts has gone up. The Bank has substantial exposure towards Infrastructure and related sectors and bringing about improvement in asset quality is quite a challenging task. However there is improvement in the provision coverage ratio, Net Interest margin and CASA. Notwithstanding the Government s ownership and the support it is expected to give the Bank, the Bank s ability to bring about significant improvement in asset quality and profitability and continue the improvement in the share of low cost deposits are the key rating sensitivities. Analyst Contact Relationship Contact analyst@brickworkratings.com bd@brickworkratings.com Phone Media Contact media@brickworkratings.com Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented as is without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons Apr 2015

6 Annexure I: Andhra Bank - Profit and Loss Statement ( Cr) Y/E MARCH Interest Income FY2013* 12,910 FY 2014* Dec 2013** Dec 2014** 14,297 10,576 12,107 Interest Expended 9,153 10,560 7,789 8,940 Net Interest Income 3,757 3,737 2,787 3,167 Change (%) -0.05% -0.53% -0.61% 13.63% Other Income 1,047 1, ,062 Net Income 4,804 5,070 3,783 4,229 Change (%) 4.01% 5.54% 8.18% 11.79% Operating Expenses 2,037 2,310 1,873 1,934 Operating Income 2,767 2,760 1,910 2,295 Change (%) -1.71% -0.25% -7.02% 20.18% Other Provisions 996 2,026 1,315 1,447 PBT 1, Tax Tax Rate % 27% 41% 42% 47% PAT 1, Change (%) -4.16% % % 30.68% *Audited year end published figures ** interim Limited audit published figures Apr 2015

7 Annexure II: Andhra Bank Balance Sheet ( Cr) Audited FY Audited FY Y/E MARCH Capital Reserves & Surplus 7,881 8,148 Net Worth 8,441 8,738 Deposits Change (%) 17.0% 14.6% CASA Deposits Borrowings 31,759 11,119 35,168 13,185 Other Liab & Provisions 2,943 3,573 Total Liabilities 146, ,341 Current Assets 6,406 9,441 Investments 37,632 45,357 Change (%) Loans 27.0% 98, % 107,644 Change (%) Net Fixed Assets 17.6% % 434 Other Assets 3,585 4,465 Total Assets 146, , Apr 2015