Brickwork cuts outlook on Lakshmi Vilas Bank's bonds to negative

Rating agency Brickwork Ratings India has revised the outlook on Lakshmi Vilas Bank’s Tier-II bonds from stable to negative. Now, these bonds carry rating of “A” with negative outlook. The rating agency cited the bank’s falling asset quality, rising cost of funds, and pressure on profitability as reasons for the downgrade.

However, the rating also indicates adequate safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

The rating factors in falling share of current and savings deposits (Casa) in total pool of deposits. Its total deposits stood at Rs 14,639 crore at end-September 2012. However, the share of Casa declined to 14.6 per cent from 16.7 per cent a year ago due to a sharp dip in current deposits.

NEGATIVE OUTLOOK

• Lakshmi Vilas Bank’s Tier-II bonds now carry ‘A’ rating with negative outlook
• Falling asset quality, rising cost of funds, and pressure on profitability are the reasons for Brickwork Ratings’ downgrade
• Share of Casa in total pool of deposits declined to 14.6 per cent from 16.7 per cent a year ago
• Gross non-performing assets swelled from 1.93 per cent in FY11 to 2.98 per cent in FY12

The rating also takes into consideration the bank’s satisfactory capital adequacy ratio (CAR) -- 13.7 per cent in September 2012, against 13.1 per cent in March 2012). Tier-I capital ratio in September stood at 9.3 per cent, while it was 8.9 per cent in March.

Brickwork said the asset quality of the bank deteriorated substantially in FY12 with gross non-performing asset (GNPA) at 2.98 per cent, against 1.93 per cent in FY11. The gross NPA further deteriorated to 3.58 per cent (Q1) and 4.50 per cent (Q2).

The total restructured loan book stood at Rs 341.93 crore as of September 2012.

The amount of restructured accounts increased to about 3.13 per cent of total advances in September 2012 from 2.49 per cent in June and 1.62 per cent in March 2012.

The bank has comfortable capitalisation levels and has sufficient headroom available under both Tier-I and Tier-II to raise capital.