India Ratings has affirmed ING Vysya Bank’s Long-Term Issuer rating at ‘IND AA-’ with a stable outlook on adequate capital position, improving asset quality and moderate funding profile.
“ING Vysya’s capitalisation is currently adequate. However, the bank will need to raise capital regularly to support its above-system-average growth targets. The bank raised Rs 970 crore of equity capital in FY’12 through a qualified institutional placement, in which its parent, ING Vysya NV, participated to the extent of its 44 per cent shareholding,” the ratings agency said in a statement.
The rating also factors in the bank’s relatively weak (although improving) profitability and relatively high proportion of loans to the traditionally volatile SME sector, the agency said.
Asset quality has improved over the two years ending first half of fiscal 2013. Gross non-performing assets (NPA) ratio declined to 1.9 per cent at end-H1FY’13, aided by lower NPA additions (FY’12: 0.7 per cent of average loans; FY’11: 1.1 per cent) and fewer slippages from the low stock of restructured loans (H1FY’13: restructured were 1.4 per cent of total loans).
According to the agency, given the moderating economic environment and the bank’s focus on growing its SME portfolio, asset quality could come under pressure in the near-to-medium term.
The bank’s high provision coverage ratio (FY’12: 91%) would help cushion any immediate spikes in delinquencies especially from its SME portfolio.
A positive rating action could result from a significant and sustained improvement in the bank’s profitability and franchise, while maintaining stable asset quality and adequate capital ratios.
A negative rating action could result from any weakening linkage with the parent, including lack of timely infusion of capital or access to risk management systems, together with a significant deterioration in ING Vysya’s capitalisation.