India Ratings and CARE assign AA/Stable rating on Federal Bank’s Additional Basel III Tier 2 Bonds

Ind-Ra has also reaffirmed existing ratings (‘IND AA/ Stable') in respect of the Bank's 'Basel Ill -Tier 2 Bonds' of Rs5 Billion.

Sep 16, 2021 09:09 IST India Infoline News Service

India Ratings and Research (Ind-Ra) has assigned ‘IND AA/ Stable' Rating in respect of The Federal Bank's 'Basel Ill -Tier 2 Bonds' of Rs5 Billion (Size of Issue) and have re-affirmed existing ratings (‘IND AA/ Stable') in respect of Bank's 'Basel Ill -Tier 2 Bonds' of Rs5 Billion (Size of Issue).

“The ratings reflect FBL’s continued large presence in the southern states of the country with a large asset and liability franchise. At end-1QFY22, the bank had a loan portfolio size of Rs1,298 billion (of which 56.1% originated in Kerala, Tamil Nadu, and Karnataka) and a deposit base of Rs1,693.9 billion (64.8% in Kerala). Furthermore, the bank had a well-diversified advances portfolio across segments, comprising corporates (Q1FY22: 36%; Q1FY21: 40.2%), retail (32.8%; 30.7%), small and medium-sized enterprises (SMEs; 18.5%;18.1%) and agriculture (12.7%; 11%).

The share of non-southern states in the total advances moderated to 40.8% in Q1FY22 (FY21: 42.0%). The retail loan book grew 15% yoy in Q1FY22, against the overall loan growth of 8%. The gold loan book grew 54% yoy , however declined 30bp on a quarterly basis to reach Rs157 billion in Q1FY22; the company’s gold loan book now forms 12% of the overall loan book,” company shared Ind-Ra’s rating rationale.

CARE Ratings has assigned ‘CARE AA; Stable’ Rating in respect of Bank's 'Basel Ill -Tier II Bonds' of Rs500cr (Size of Issue).

“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, 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,” company shared CARE Rtaings rationale.

At around 10.01 am, Federal Bank Ltd. was trading at Rs83.45 per piece down Rs0.20 or 0.24% on the BSE.

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