National Bank For Agriculture and Rural Development Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'; rated amount enhanced for Commercial Paper
Rating Action
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. 1 crore = 10 million Refer to annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ to the existing bank facilities and outstanding debt instruments of National Bank for Agriculture and Rural Development (NABARD).
The ratings reflect the expectation of continued strong support from the Government of India (GoI), given NABARD’s key public policy role. The ratings also factor in NABARD’s strong capitalisation, robust asset protection mechanisms, and adequate resource profile. These strengths are partially offset by the bank’s modest earnings. |
Analytical Approach CRISIL Ratings on NABARD continue to be centrally based on the support NABARD receives from GoI and the key public policy role that the institution plays in India’s agriculture sector. The ratings also factor in NABARD’s strong capitalization, robust asset protection mechanisms and adequate resource profile. These rating strengths are partially offset by the bank’s modest earning’s profile. |
Key Rating Drivers & Detailed Description Strengths:
NABARD is the apex financial institution that implements GoI’s policies on planning and credit dispensation to agricultural and rural sectors. It refinances the entire cooperative credit system and banks through short- and long-term loans to help facilitate the flow of agricultural credit. NABARD also plays a developmental role in strengthening the cooperative structure to evolve a sustainable rural financial system to enhance ground level credit flow to farmers and others in rural areas. Over the past few years, the role and scope of NABARD has been significantly enlarged by GoI. The institution has been entrusted with the management of various development funds including the Rural Infrastructure Development Fund (RIDF). GoI created RIDF in NABARD in fiscal 1996 with an initial corpus of Rs 2,000 crore. However, with allocation of Rs 40,000 crore for fiscal 2022 under RIDF XXVII, the cumulative sanction stood at Rs 458,410.7 crore as on March, 31, 2023. At present, the activities under RIDF include credit to the agricultural and related sectors, the social sector, and rural connectivity.
Over the past five years, the loan book for NABARD has grown at a CAGR of 16% to reach Rs 730,901 crores as on March 31, 2023. The loan book is broadly divided into two segments: direct finance and refinance book. Direct finance (Rs 324,282.8 crore or 44.4% of the loan book as on March 31, 2023) includes direct transmission of loans to state government and other agencies for rural infrastructure development and/or loans to voluntary agencies/non-governmental organisations for development activities. It also includes direct loans to cooperative banks. Of the total direct loans, about 47.5% is towards loans under RIDF while 16.6% is towards Long Term Irrigation Fund (LTIF). On the other hand, refinance loans (Rs 406,618 crore or 55.6% of loans as on March 31, 2023) include loans to state government commercial banks, State Cooperative Agriculture and Rural Development Banks (SCARDBs), and regional rural banks (RRBs) as refinance against the loans disbursed by them to the final borrowers. Of the total refinance loan book, about 61.9% is towards medium and long-term irrigation projects while 34.7% is towards production and marketing credit. In the past couple of years, the refinance loans grew faster than that of direct loans.
NABARD’s strong capitalisation is indicated by overall high capital adequacy ratio of 16.9% as on March 31, 2023 (16.1% as on March 31, 2022) and low asset related risks. NABARD’s capital position is also supported by regular infusion of capital by GoI and steady, albeit low, internal accrual. As per the NABARD (Amendment) Bill passed in April 2018, NABARD’s authorised capital was increased six fold to Rs 30,000 crore. GoI had infused Rs 2000 crore in fiscal 2022. The institution has a strong networth coverage for its non-performing assets (NPAs), because of low gross NPAs and robust asset protection mechanisms. As on March 31, 2023, gross NPAs accounted for 0.28% of its gross advances (0.31% as on March 31, 2022).
NABARD has strong asset protection mechanisms to manage its credit risk exposure. To ensure robust asset quality, the eligibility criteria for refinance is linked to net NPAs of scheduled commercial banks (SCBs), State Cooperative Banks (STCBs), RRBs, and primary urban cooperative banks (PUCBs). NABARD’s advances are backed by guarantees from state governments or GoI. The share of guaranteed portfolio was around 45% as on March 31, 2023. Additionally, NABARD, has the option to request the Reserve Bank of India (RBI) to debit from the current account of borrowers in the instance of default. Finally, for most of the borrowers, NABARD is the only source of borrowing, and hence, repayment of loans to NABARD takes precedence over other obligations.
NABARD's resource profile is marked by support from GoI. As of March 31, 2023, NABARD’s total borrowings stood at Rs 6,88,859 crore, of which 42% or Rs 285,641 crore was market borrowings, which includes corporate bonds, tax free bonds and term loans, commercial paper, certificate of deposit and term money borrowings.
NABARD has been recognised as the nodal agency to mobilise RIDF deposits from commercial banks; these deposits formed a significant portion of total borrowings at 24% as on March 31, 2023 (23% as on March 31, 2022). Overall, the priority sector lending (PSL) shortfall funds (RIDF, Warehousing, Infra, Food Processing Fund, Long Term Rural Credit [LRTC], Short-Term Cooperative Rural Credit [STCRC] Fund Deposits, and Short-Term Regional Rural Banks [RRB] Fund Deposits) together constituted 40% of total borrowings as on March 31, 2023.
The remaining 18% of borrowings were from GoI schemes. NABARD raised GoI fully service bonds and the purpose of these bonds to be raised by NABARD is to provide funding for Long Term Irrigation Fund, Pradhan Mantri Aawas Yojna-Gramin (PMAY-G) and Swatch Bharat Mission-Gramin (SBM-G). These bonds will be fully serviced by GoI. Hence, a separate government guarantee is not required for issue of these bonds. In its analytical treatment, CRISIL has considered that NABARD will ensure bonds are serviced on time.
Furthermore, since fiscal 2009, GoI has been supporting NABARD’s resource profile by creating STCRC Fund and Short-Term RRB Credit Refinance Fund. However, GoI’s fiscal management policies and financial reforms in the past few years have led to increase in the institution’s reliance on market borrowings, resulting in higher cost of borrowings. CRISIL believes NABARD will maintain an adequate resource profile supported by the steps taken by GoI to augment the institution’s funding profile. However, more sustainable long-term funding solutions need to be introduced to support NABARD over the medium term.
Weakness:
NABARD has low gross spreads, driven by lending at mandated rates and increased dependence on borrowings at market rates. The company reported a net profit of Rs 5,360 crore and total income (net of interest expense) of Rs 8,980 crore for the fiscal ended March 31, 2023, as against the net profit of Rs 5,082 crore and total income (net of interest expenses) of Rs 10,205 crore for the year ending March 31, 2022. The return on the asset (RoA) of the bank stood at 0.69% for the fiscal ended March 31, 2023 and have remained range bound over the past five fiscals at 0.7-0.8%. Nevertheless, controlled credit costs which stood at 0.07% for the for the fiscal ended March 31, 2023 as compared to 0.17% for fiscal 2022 continue to support the earnings profile of the bank. |
Liquidity: Superior The asset liability management profile of NABARD had cumulative positive mismatches in all the buckets as of March 31, 2023. As on May 26, 2023, The bank had a cash and liquid investments of Rs 57,213.8 crore, against which it had debt repayments of Rs 69,156 crore for the next two months. |
Outlook: Stable CRISIL Ratings believes NABARD will continue to receive strong funding and operational support from GoI and maintain its healthy capitalisation and competitive resource cost over the medium term. The asset protection mechanism available to NABARD is likely to continue. |
Rating Sensitivity factors Downward factors:
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About the Company Incorporated in 1982 under an Act of the Indian Parliament, National Bank for Agricultural and Rural Development (NABARD) is governed by the NABARD Act, 1981. The agency took over the agricultural credit functions of the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of RBI, and Agricultural Refinance and Development Corporation (ARDC). NABARD shares supervisory functions with RBI in respect of cooperative banks (other than urban and primary cooperative banks) and RRBs. Wholly owned by GoI, the bank is the apex refinancing agency providing short- and long-term refinance to state cooperative banks, RRBs, commercial banks, and other financial institutions approved by RBI to augment credit flow for production and investment purposes in the agriculture and rural sectors. It also plays a developmental role in strengthening the rural financial institutions. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Criteria Details
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