By Udit Kariwala

India Ratings and Research (Ind-Ra) has assigned Sberbank Branch in India’s (SBERIN) INR1.0bn certificates of deposit programme a rating of ‘IND A1+’.

KEY RATING DRIVERS

The rating reflects Sberbank of Russia’s (Sberbank; Fitch Ratings Long-Term Issuer Default Rating: ‘BBB-/Negative’, Viability Rating: ‘bbb-’) commitment and ability to support its Indian branch. Being under the same legal entity, the head office is responsible for SBERIN’s solvency, liquidity, and strategic planning. The Russian head office has provided SBERIN with a committed line of credit, i.e. a USD denominated loan facility of up to INR1.9bn. Ind-Ra has been informed that funding under this line is available to SBERIN on an overnight basis, should the need arise.  

The Russian head office has demonstrated its commitment to support the Indian branch with various equity injections from 2011-2013, amounting to a total infusion of INR1.9bn over this time period. 

Sberbank operates through a branch structure in India, with one branch located in Delhi. The branch has a concentrated loan portfolio, with the top 20 exposures making up 100% of the portfolio (FY15: INR3bn). The small number of borrowers exposes
SBERIN to significant non-performing loan (NPL) and credit cost volatility, which was reflected in the branch’s gross NPL levels rising to 15.68% in FY15 from 6.04% in FY14. That being said, the India branch business is a miniscule part of Sberbank’s global business. The branch has indicated that recoveries from NPLs have been positive and expects to recover the full amount from some of the troubled accounts. Further slippages from currently performing exposures, however, continue to pose a risk to profitability and could affect the liquidity position of the branch due to delays or non-receipt of potential inflows.

However, further slippage from the concentrated loan book may put some liquidity pressure on the branch’s operations. The branch is also well capitalised with a Tier 1 ratio of 53.64% at FYE15 and does not expect further equity from the head office over the near-term. 

The branch has indicated a focus on trade finance, commercial 
lending and settlement services to boost incomes. Net interest margin (NIM) for SBERIN rose in FY15 to 8.8% (FYE14: 7.6%) on the back of interest income from the significant loan book expansion undertaken in the latter months of FY14.


RATING SENSITIVITIES

Negative: If Sberbank’s Long-Term Issuer Default Rating is downgraded below ‘BB+’ by Fitch Ratings, this may trigger a negative rating action for SBERIN. Also, any reduction in the parent’s commitment to SBERIN, although unexpected (such as the inability to roll over the current committed line into CY2017), or a severe impact arising from further slippages in SBERIN’s concentrated loan book, may also trigger a negative rating action.


COMPANY PROFILE

Sberbank received approval from the Reserve Bank of India in May 2010 to set up a branch in India and registered the same by September 2010. The main objective of the branch is to create a strategic presence in the Indian market which has been identified as a market with high potential. The branch has domestic credit exposures, with a loan book size of INR3bn and operates primarily in the corporate space, both on the liability and asset fronts. The branch first disbursed loans in FY13 and turned profitable in FY15.



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer. 

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Analyst Names

  • Primary Analyst

    Udit Kariwala

    Associate Director
    Wockhardt Towers, Level 4, West Wing, Bandra Kurla Complex, Bandra (E), Mumbai :-400051
    +91 22 40001749

    Secondary Analyst

    Abhishek Bhattacharya

    Director and Co Head Corporates
    +91 22 40001786

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121