By Jindal Haria

India Ratings and Research (Ind-Ra) has affirmed Barclays Bank Plc - India Branch's (Barclays India) Short-Term Issuer Rating at 'IND A1+'. The agency has also affirmed Barclays India's INR50bn certificates of deposit programme at 'IND A1+'.

KEY RATING DRIVERS

Branch of a Global Bank: The rating continues to reflect Barclays Bank Plc’s (Barclays; Fitch Ratings Ltd. Long-Term Issuer Default Rating ‘A’/Stable and Viability Rating ‘a’) financial strength and Ind-Ra’s expectation of continued strong support from Barclays, of which Barclays India is a branch. Barclays has supported Barclays India by way of equity injections (INR41.1bn since FY08) and being a branch, Barclay India’s liabilities are those of Barclays. 

Business Strategy focussed on Corporates:
Barclays India has realigned its business strategy towards corporate lending following the rise in NPLs especially in the retail portfolio over FY08-FY11. Barclays India closed down its retail assets division in 2012 and has written off most of the associated legacy non-performing assets by FY16. The focus is now on bill discounting (constituting 63% of the loan portfolio in FY16) and lending to large, highly rated clients and MNC subsidiaries in the corporate banking space. Although the loan book grew about 25% yoy in FY16 (FY15: 61%), it could see some de-growth in FY17 as the branch needs to manage the foreign currency non-resident (bank) (FCNRB) outflow of about INR79bn in 3QFY17. 

Foreign Deposit Outflow Manageable:
Barclays India has well-matched asset and liability maturity tenors. The FCNR outflow of INR79bn in Ind-Ra’s assessment is manageable given the branch expects moderate growth in its loan portfolio. The bank also had excess SLR (statutory liquidity ratio) investments of about INR35bn as of 2QFY17. For the balance of about INR20bn-INR25bn, the bank has already built its deposits, and could raise certificates of deposit and financing against export-related loans. 

Adequate Capital Position:
Barclays India’s Tier 1 ratio stood at 18.2% at FYE16 (FY15: 17.6%), which could serve as a cushion against potential credit losses from stressed sectors in FY16. Ind-Ra expects the capital adequacy to be sufficient in the medium term. 

Improving Profitability:
Barclays India’s profitability has improved on the back of discontinued retail operations and a renewed focus on better-rated corporates. Its return on assets increased to 1.5% in FY16 (FY15: 1.3%), mainly due to the re-pricing of a majority of its short-term loans in FY16 (yields – FY15: 7.87%, FY14: 7.08%); Ind-Ra expects the bank to face a slight decline in yields and an increase in deposit costs due to the FCNRB outflow which could impede the improvement in the return on assets in FY17. 

Asset Quality Pressures:
Barclays India's gross NPL ratio declined to 1.1% in FY16 (FY15: 2.28%; FY14:5.5%), due to write-offs mostly of its retail loans. Barclays India’s infrastructure exposure (mainly ports and telecom) is towards higher-rated Indian corporates or operating subsidiaries of multinational companies.


RATING SENSITIVITIES

The rating could be downgraded if support from Barclays is deemed by Ind-Ra to have significantly weakened. A rating downgrade for Barclays below India’s sovereign ‘BBB-’ rating (by Fitch Ratings) could also lead to a rating downgrade for Barclays India, although this is unlikely in the near term. 

Changes in the ownership structure such as Barclays India converting to a wholly owned subsidiary from a branch, if undertaken, are unlikely to impact its rating so long as Barclays retain a majority ownership of the newly formed subsidiary.


COMPANY PROFILE

Barclays obtained a commercial banking license in India in 1990 and offers a wide suite of banking products through six branches. 



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in.The issuer did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure. 

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

    Jindal Haria

    Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001750

    Media Relation

    Archana Tiwari

    Sr. Manager – Corporate Communications & Investor Relations
    +91 22 40001729