Kerala-based Catholic Syrian Bank (CSB) has high exposure to cyclically weak sectors such as textiles, according to rating agency India Ratings. About 6.9 per cent of its total loans is towards the textiles sector alone, the rating agency said.
CSB works on high financial leverage and weak operating profitability, providing limited buffer against any potential impairment in asset quality, India Ratings said.
The bank will need an additional dose of equity injection to due to its higher exposure to cyclically-weak sectors and to support its plan to grow the loan book at a pace higher than industry average, the rating agency said.
The bank’s capitalisation is modest. The tier-I capital adequacy ratio at end-March 2012 was 8.83 per cent, down from 9.42 per cent for FY11. The tier-I ratio is boosted by low risk-weight on loan portfolio stemming from the bank’s large gold loan portfolio (30 per cent of total loans).
CSB’s gross non-performing loan ratio declined to 2.36 per cent for FY12 from 3.05 per cent in FY11. However, this is largely due to an increase in the bank’s loan write-offs.
The provision cover for non performing assets remains low at 42.7 per cent for FY12, (41.9 per cent in FY11). Such low level of coverage decreases its cushion against credit losses.
The share of current and savings account (Casa) deposits ratio is low at 19.32 per cent at end-March 2012, a huge decline from 25.12 per cent in FY10.
The decline in share of low-cost deposits is on account of its increasing reliance on high-cost deposits to fund rapid expansion in loan portfolio. Its loan book rose by 22.9 per cent in FY12. The pace of loan growth was much higher at 38.7 per cent, according to India Ratings data.