ICRA assigns LAAA to Rs 225 cr Tier II bonds of SBS

New Delhi, Oct 11 (UNI) Credit rating agency ICRA today assigned highest credit quality rating LAAA, the highest credit quality rating, to Rs 225 crore Tier II bonds of State Bank of Saurashtra (SBS).

The agency has an outstanding outlook on Rs 200 crore subordinated bonds, besides A1+ rating on the Rs 2,500 certificate of deposit programme and MAAA rating to the term deposit programme of the bank.

The bank's strong ownership by SBI and the operating synergies that the associate has with its parent are the key rating drivers for the highest credit- quality rating. The rating also factors in SBS's strong franchise value (primarily in Saurashtra region of Gujarat), which has allowed it to sustain its market position, as evident from its growing credit portfolio and stable retail deposit base.

The rating also factors in the bank's comfortable solvency, liquidity and adequate capital adequacy.

ICRA has taken note of the pressure on SBS's profits on account of rise in its operating expenses and relatively high losses on its fixed income investment portfolio. However, over the medium term, increase in net interest income driven by asset base expansion, would partly mitigate the likely pressure on its profits.

SBS has a market share of about 8 per cent in deposits and a 9 per cent market share in credit as on March 31, 2005 on the strength of its extensive presence in Gujarat (85 per cent of the bank's 423 branches are in the state).

Overall, in ICRA's view, the bank's strong franchise in Gujarat and focus on retail segment would help it cope with the increasing competition from other banks in the State. SBS being an associate bank of SBI derives significant benefits from its parent's brand name and logo.

UNI KR CS DB2005