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 exposesSBERIN 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.
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