- Tamil Nadu based Lakshmi Vilas Bank Credit Ratings have been cut down from BBB+ to BBB-
- Brickwork Ratings considered Lakshmi Vilas Bank’s financial results up to Q3/9M FY19, publicly available information and other information provided by the bank.
- Influential downgrading factors like the the decrease in business both in advances and deposits, operating loss incurred in Q3 FY 19, higher net loss for 9MFY 19 etc. played a huge part.
The Karur (Tamil Nadu) based Lakshmi Vilas Bank introduced itself as ‘Scheduled Commercial Bank’ in August 1958. The bank’s corporate office is located at Guindy, Chennai. The bank started expanding its branches out of Tamil Nadu. As of September 30, 2018, the bank had 569 branches with 1048 ATMs throughout 18 states and 1 Union Territory of India. Majority of branches are held in Southern states of India like Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, and Kerala.
In compliance with SEBI Listing Obligations and Disclosure Requirement (LODR) Regulations, 2015, Brickwork Ratings India Pvt. Ltd has downgraded the credit rating of Lakshmi Vilas Bank from BWR BBB+ to BWR BBB- for Unsecured Redeemable Non-Convertible Subordinated Lower Tier II Bonds – Series VII of INR 50.50 Crores.
Various factors played in downgrading the ratings like continued weak performance of the bank in terms of decrease in business both in advances and deposits, operating loss incurred in Q3 FY 19, higher net loss for 9MFY 19 as compared to full-year FY 18 net loss, weakening asset quality reflected through increased Gross NPA and Net NPA, higher provisions leading to the net loss and impacting the capital adequacy.
The Capital to Risk Weighted Assets Ratio (CRAR) as of December 31, 2018, is below that of March 31, 2018, and the capital adequacy ratio as of March 31, 2018, was below the regulatory requirement. Generating profit and maintaining CRAR as per regulatory requirement shall be the key rating sensitivities.
Key Rating Drivers
Credit Strengths of Lakshmi Vilas Bank
- The bank has its existence in Southern states of Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, and Kerala.
- The bank’s Current and Savings Account Ratio (CSAR) has hiked up from 21.06% in FY 18 to 22.85% in 9MFY19.
- Experienced Board Members and senior management team are the spines of this bank. The Board has 2 nominee director from RBI.
Credit Risks of Lakshmi Vilas Bank
- A string of weak performances in terms of business, earnings and asset quality since FY 18.
- Business declined by 9% with a decrease in advances by 11% and deposits by 8% during 9M FY 19.
- The bank suffered an operating loss in Q3 FY 19 since the operating loss in Q4 FY 18. For 9M FY 19, the bank made provisions of INR 798 Cr (FY 18: Rs.1306 Cr) and incurred a net loss of INR 705Cr (FY 18 net loss of Rs.585 Cr).
- Gross Non-Performing Asset (GNPA) has increased to INR 3364 Crores as of 9M FY 19 (FY 18: INR 2962 Crores) and Net NPA increased to INR 1716 Crores (FY 18 INR 1458 Crores), Put-Call Ratio (PCR) is 55.93% (FY 18: 55.07%).
- As of December 31, 2018 capital adequacy ratios of CRAR @ 7.57% and Tier I @ 5.57% is below the ratios as of March 31, 2018, which had CRAR of 9.81% and Tier I of 8.05%. The capital adequacy ratio of the Bank as of March 31, 2018, had declined below statutory requirement.
Here’s the enclosed official Rating Review Letter provided by the rating agency for downward revision of rating of Lakshmi Vilas Bank.
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