New Delhi: Rating agency CRISIL on Thursday revised its outlook on AU Small Finance Bank’s long-term debt instruments (Tier-II bonds, non-convertible debentures and subordinated debt bonds) to AA/stable.
Earlier, the Tier II bond having a CRISIL AA-/Positive rating has been upgraded to CRISIL AA/Stable, the lender said in a statement. Also, the rating of the Fixed Deposit Program of the Bank has been upgraded from CRISIL FAA+/Positive to AA/Stable.
“The upgrade of the rating is testament to the overall performance of the Bank and its ability to improve its asset quality and income profile,” AU Small Finance Bank said in the statement.
“The upgrade of the rating by CRISIL is the result of hard work by the AU Bank team to ensure ramp-up in deposit franchises, strong asset quality in the post-COVID scenario, and a hawk-eye outlook on asset quality. We have maintained adequate capitalization and healthy profitability metrics despite challenges. Sanjay Agarwal, Managing Director and CEO, AU Small Finance Bank said, “Going forward, we will continue to invest in our digital capabilities and introduce new products to ensure quality services to our customers.
The bank said that the key forces driving the rating up include adequate capitalization with the capital adequacy ratio consistently above 15%; Continuous improvement in its deposit franchise with a three-year CAGR of 39.4%; the ability of the Bank to maintain its retail deposit franchise improving; and a demonstrated track record of maintaining above-average asset quality through a strong focus on portfolio monitoring and collection practices and a comprehensive understanding of operating geography and borrower profile.
Low cost of incremental funding due to high returns due to substantial profitability in the last three to four years and strong liquidity with an average liquidity coverage ratio (LCR) of 125% against the regulatory requirement of 100% are other factors that affect the rating. We do.
CARE Ratings has also, recently, upgraded the Bank’s Long Term Debt Instruments (Tier-II Bonds) rating to CARE AA/Stable which was earlier CARE AA-/Stable. In addition, the agency has also confirmed the rating of short-term instruments (certificate of deposits) of the bank at A1+.