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.
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