During FY 09, the Bank has enhanced its profitability by focusing on retail, MSME (Medium, Small and Micro Enterprises) and agriculture credit, and reduced its exposure on low yielding advances. As a result, the Banks return on assets stood at 1.27% as against the peers average of 1.10% as on 31st March 2009. Similarly, the return on equity stood at 24.79% as against the peers average of 22.04%.
The Bank has been consistently improving its total business over the years. During FY 08, the Bank has adopted several business development initiatives to grow its business and one important initiative is to bring all the branches under core banking solution (CBS). With 100% CBS branches, the Bank skillfully prevailed over the tough economic conditions during FY 09, to grow its total business by 31.84% to reach INR 2369.68 billion as compared to INR 1797.37 billion during FY08. Further, the Banks credit to deposit ratio has decreased from 75.77% during FY08 to 70.84% in FY09, it is a positive sign. As a result, the Banks CD ratio was 240 bps lower than its peers average as on 31st March 2009. The Bank has a well defined treasury operations and risk management system. The Bank has been trying to optimize its investment decisions based on internal risk return trade off and the boards risk management guidelines. As a result, the Banks yield on investments has increased to 7.24% during FY09 from 6.96% for the same period a year ago.
The Bank has accomplished excellent credit growth with declining gross NPAs by adhering to its well defined loan policy. During FY09, the Banks gross NPA declined to 1.96% from 2.18% as on 31st March 2008. However, the Banks net NPA were 0.34% as against 0.17%. Nevertheless, the Banks net NPAs were still 31 bps lower than its peers average. The Bank has consistently maintained better NPA provisions over the years. During FY 09, the Banks loan loss coverage ratio at 83% is the best amongst its peers.
The Banks CASA deposits increased from INR 362.04 billion in FY08 to INR 417.11 billion in FY09, however, the CASA deposits growth was much slower at 15.2%, leading to a 479-bps decline in the ratio (from 34.86% in FY08 to 30.07% in FY09). Further, the Bank has reduced its high cost deposits of INR 35.20 billion during the year, therefore its high cost deposit to total deposit ratio had come down to 10.53% in FY09 from the previous level of 17.45%. The Bank has added 4.10 million depositors to reach total deposit clientele of 23.60 million as on 31st March 2009.
The Banks capital adequacy ratio under Basel II is 39 bps lower than its peers. As of 31st March 2009, the Banks CRAR was at 13.27% as against the peers average of 13.66%. Similarly, the Banks Tier I capital stood at 8.19%, which is slightly lower than its peers average of 8.27%. The Banks Tier II capital is expected to improve with the proposed Upper Tier II issue of INR 5 .00 billion.
It is observed that the Bank has got the lowest cost of funds among its peers as on 31st March 2009. The Banks return on funds is comparatively lower than its peers, which has dipped the Net Interest Margin (NIM) slightly from 3.40% in FY08 to 3.24% in FY09. However, the Banks NIM is 39 bps higher than its peers average.
Brickwork expects that the current economic slowdown, assets restructuring and high cost deposits to have some pressure on margins and maintaining asset quality in the near term. However, the Banks effective risk management practices, growing earnings, declining trend in gross NPAs, strong recovery record, 100% CBS branches are positive factors which would help the Bank to manage the current economic uncertainties. Brickwork has assigned a stable rating outlook for the issue.