ACRA assigns A(RU) to Commercial Indo Bank LLC, outlook Stable

The credit rating assigned to Commercial Indo Bank LLC (hereinafter, the Bank) is based on the Bank’s moderate standalone creditworthiness assessment (SCA) and the high probability of external support from its parent companies, both of which have  strong  creditworthiness. The SCA is based on the Bank’s strong capital adequacy, adequate risk profile, strong liquidity, satisfactory funding position, and satisfactory business profile assessment.

The Bank is a credit organization ranked 169th in terms of capital among Russian banks. State Bank of India and Canara Bank (hereinafter, the Supporting Organizations, or SOs) own 60% and 40% of the Bank, respectively, and both under the majority control of the Republic of India. State Bank of India is the largest bank in India by assets, whereas Canara Bank is the seventh largest.

Key rating assessment factors

High probability of extraordinary support from the SOs. In ACRA’s opinion, if necessary, both State Bank of India and Canara Bank will be able to provide the Bank with sufficient long- and short-term funding, as well as capital injections. The final assessment of the country risk of the jurisdictions of the foreign SOs (the Republic of India) is equal to Russia’s country risk. The standalone creditworthiness of both Supporting Organizations is assessed as strong.

ACRA assesses the level of connection between the Bank and the SOs as strong due to the following:

  • Pronounced operational integration between the Bank and the SOs (the SOs determine the Bank’s corporate procedures);

  • The Bank conducts a considerable amount of operations with Indian companies that do business in Russia.

Therefore, the Bank’s credit rating is increased by three notches above the SCA of bbb.

ACRA assesses the Bank’s business profile as satisfactory due to its limited diversification and relatively weak position in the Russian market. ACRA takes into account the transparency of the shareholder structure and a well-formed strategy for 2020-2023 based on realistic economic prerequisites for development as well as the Bank’s goal to operate in the niche of servicing companies associated with the Republic of India.

ACRA assesses the Bank’s capital position as strong given the high regulatory capital adequacy ratio (N1.2 stood at 69.1% as of February 1, 2020). The Bank’s ability to generate capital is adequate, with the average capital generation ratio totaling 181 bps. This is mainly due to the Bank’s low expenses on loan losses. NIM (net interest margin) averaged 6.6% in 2016-2018. ACRA notes the loss that the bank incurred due to the impairment of Otkritie Bank and Promsvyazbank’s bonds in 2017, which adversely affected the Bank’s profits.

The Bank’s adequate risk profile assessment is based on the high quality of assets. Securities held by the Bank amounted to RUB 1.4 bln as of June 30, 2019, or around 40% of the total assets. The securities portfolio consists solely of Russian sovereign bonds. The Bank’s loan portfolio of RUB 1.2 bln consists of loans to a limited number of borrowers. ACRA notes the absence of problem loans (Stage 3 under IFRS9) in the Bank’s loan book. The guarantees portfolio stood at RUB 315 mln as of June 30, 2019. The Bank’s 2023 strategy includes gradually growing the loan book, expanding to mortgages, and growing guarantees issued on government contracts.

The strong liquidity position is based on a high volume of liquid assets. The short-term liquidity shortage indicator shows that in ACRA’s base case scenario, the Bank has nearly RUB 2.5 bln of excess liquidity, and regulatory liquidity ratios have consistently been above minimum.

ACRA notes the Bank’s high resource base concentration, which limits its funding assessment. The Bank’s liabilities are made up of corporate deposits and interbank funds. Dependence on the largest depositors is relatively high with the largest depositor accounting for 23% of total liabilities, while the top 10 clients account for 53%. The largest creditor is the embassy of the Republic of India and ACRA believes that the relationship between the Bank and this depositor is highly predictable.

Key assumptions

  • State Bank of India and Canara Bank maintaining shareholder and operational control;
  • N1.2 above 12% within the 12 to 18-month horizon;
  • Maintaining operating profitability;
  • Maintaining the strong liquidity position.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Improvement in the SOs’ financial standing;
  • Significant increase in the diversification of funding sources.

A negative rating action may be prompted by:

  • Reduced interest of the SOs in developing business in the Russian Federation;
  • Substantial deterioration of the SOs’ financial standing and their operating environment;
  • Deterioration in the Bank’s liquidity position;
  • Rapid growth in the share of loans in the Bank’s portfolio coupled with simultaneous deterioration in their quality.

Rating components

SCA: bbb.

Adjustments: none.

Support: SCA + 3 notches.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation, the Methodology for Analyzing Relationships Between Rated Entities and Supporting Organizations Registered Outside the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.

A credit rating has been assigned Commercial Indo Bank LLC for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release .

The assigned credit rating is based on data provided by Commercial Indo Bank LLC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS statements of Commercial Indo Bank LLC and statements of Commercial Indo Bank LLC composed in compliance with the Bank of Russia Ordinance No. 4927-U, dated October 8, 2018. The credit rating is solicited, and Commercial Indo Bank LLC participated in its assignment

No material discrepancies between the provided data and data officially disclosed by Commercial Indo Bank LLC in its financial statements have been discovered.

ACRA provided no additional services to Commercial Indo Bank LLC. No conflicts of interest were discovered in the course of credit rating assignment.

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