The outlook revision reflects the Kerala-based lender’s higher proportion of stressed assets to net worth, subdued profitability along with lower provision coverage compared to peer banks.
This has been exerting additional pressure on the bank’s already weakened capital buffers, thereby increasing the importance of raising tier-1capital in the medium term.
The affirmation reflects SIB’s stable liability and funding franchise, improved diversification of loan book, and sizable presence in terms of size and scale in key south Indian geographies, the rating agency said.
SIB’s capitalisation has weakened over the last 11 quarters (Basel-III tier-I capital at 9.6 per cent in September 2019) due to decline in internal accruals.
Its credit costs have been rising while the proportion of non-agri and SME gold loans has come down.
There could be further pressure on the asset quality owing to slippages from below ‘BBB’-rated corporate borrowers and small mention accounts 2 (SMA2) accounts in the second half of FY20.
It currently has adequate liquidity. SIB’s short-term (one year) asset-liability profile remains matched. Also, the liquidity coverage ratio stood at 200 per cent in first half of FY20. It is well above the regulatory requirement of 100 per cent.
The bank’s pool of bonds over the statutory liquidity ratio (SLR) requirement was to the tune of Rs 1,200 crore (around 1.4 per cent of deposits) in the first half of FY20.
SIB has a well-diversified business profile, with the retail (excluding gold) segment at 26.7 per cent of the overall book.
The share of corporate and SME accounts stood at 30.8 per cent and 24.3 per cent, respectively.