Rating Rationale
February 16, 2024 | Mumbai
TJSB Sahakari Bank Limited
Rating reaffirmed at 'CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.265 Crore
Short Term RatingCRISIL A1 (Reaffirmed)
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1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1’ rating on the short-term bank facilities of TJSB Sahakari Bank Ltd (TJSB).

 

The rating continues to reflect the healthy capital position, stable earnings profile and adequate resource profile of the bank. These strengths are partially offset by a concentrated loan portfolio among micro, small and medium enterprises (MSMEs), modest asset quality metrics and exposure to risks inherent in the urban cooperative banking sector.

 

In fiscal 2023, advances grew by 7% to Rs 7,211 crore on account of higher demand of credit from the MSME segment. As on December 31, 2023, the bank reported gross advances of Rs 7,183 crore. On the asset quality front, gross non-performing assets (GNPAs) remained stable at 3.9% as on March 31, 2023 (3.9% a year earlier), mainly supported by recoveries. In the first half of fiscal 2024, the bank faced asset quality issues in few accounts and consequently GNPAs increased to 4.8% as on December 31, 2023. CRISIL Ratings understands that the situation improved during October 2023 and November 2023 and the bank was able to recover from some of these accounts. Therefore, GNPAs are expected below 4% in fiscal 2024.

 

Capital adequacy has remained comfortable for current scale of operations. As on December 31, 2023, tier 1 and overall capital adequacy ratio (CAR) of the bank stood at 15.26% and 17.41%, respectively (14.69% and 16.93%, respectively, as on March 31, 2023). On December 1, 2022, the Reserve Bank of India (RBI) released a new regulatory framework for urban cooperative banks. As per this framework, all the cooperative banks will have to achieve CAR of 10% by March 31, 2024, 11% by March 31, 2025; and 12% by March 31, 2026. The capital adequacy of TJSB will remain above regulatory requirement over the medium term.

 

The bank’s earnings profile remained stable with return on assets (RoA) at 1.1% in fiscal 2023, as against 1.0% in fiscal 2022. CRISIL Ratings notes that the bank has an aggressive provisioning policy, with more than 100% of GNPAs being provided. Outstanding deposit base increased by around 3% to Rs 13,742 crore as on March 31, 2023, from Rs 12,049 crore as on March 31, 2021. As on December 31, 2023, the bank had a deposit base of Rs 13,845 crore with current account and savings account (CASA) deposits of 29.83%

Analytical Approach

To arrive at its rating, CRISIL Ratings has considered the standalone business and financial risk profiles of TJSB.

Key Rating Drivers & Detailed Description

Strengths:

  • Adequate capital position: As on September 30, 2023, the tier 1 and CAR of the bank stood at 15.56% and 17.80%, respectively (14.69% and 16.93% as on March 31, 2023). The bank’s coverage for weak assets was high as it has limited net non-performing assets. Being a cooperative bank, it is not allowed to raise capital from the open market and has to remain dependent on the capital raised from its members. Nonetheless, the bank has been able to maintain overall CAR of 14-16% in the last five fiscals.

 

  • Stable earnings profile: RoA stood at 1.16% in fiscal 2023, compared with 1.12% in fiscal 2022. As on September 30, 2023, RoA stood at 1.4% (on annualised basis). Profitability remains better than the average earnings of cooperative and private sector banks, which have greater focus on the MSME segment, driven by higher yield from MSMEs, traders and other small borrowers. Furthermore, the bank was able to maintain operating cost at a stable 2.1% of average funds deployed in fiscal 2023. This reduced cost of borrowing to 4.6% in fiscal 2022 from 5-6% in the previous two fiscals. CRISIL Ratings also notes that the bank has an aggressive provisioning policy with 100% of GNPAs being provided. Nonetheless, RoA has been stable in the range of 0.9% to 1.1% over the last five years.

 

  • Healthy resource profile: TJSB’s outstanding deposit base increased by around 3.05% to Rs 13,743 crore as on March 31, 2023, from Rs 13,336 crore as on March 31, 2022. As on September 30, 2023, the bank had a deposit base of Rs 13,518crore. Also, CASA improved to 29.8% in fiscal 2023 from 28.7% in fiscal 2022. As on September 30, 2023, the bank’s CASA stood at 29.71%. The bank has low reliance on bulk deposits. Moreover, around 70% of term deposits have ticket size less than Rs 15 lakh. The top 20 depositors comprise ~6.5% of the overall deposits. Credit to deposit (CD) ratio was comfortable around 51.43% as on September 30, 2023, against 48.60% a year earlier. The bank is typically conservative in terms of asset growth; as a result, the CD ratio has remained below 53% in the last five years.

 

Weaknesses:

  • Modest asset quality metrics: GNPAs of the bank remained stable at 3.9% as on March 31, 2023 (3.9% as on March 31, 2022). This improvement was primarily due to recoveries and upgradations, which stood at 0.30% of opening GNPAs of the bank.

 

In the first half of fiscal 2024, the bank faced asset quality issues due to slippages in few MSME accounts. As a result, the GNPAs increased to around 4.7% as on September 30, 2023. This situation has improved in October and November 2023and the bank has been able to recover from some of these accounts. The GNPAs are expected at less than 4% in fiscal 2024. Nevertheless, the credit risk profile of the bank remains supported by the aggressive provisioning policy followed by TJSB: the bank provides for more than 100% on its GNPAs, because of which net NPAs were nil as on March 31, 2023. CRISIL Ratings will continue to monitor the asset quality performance of the bank over the medium term.

 

  • High concentration towards the SME and MSME segments: TJSB’s portfolio is geographically and sectorally concentrated towards SMEs and MSMEs in Nagpur, Mumbai, Nashik and Pune, which collectively account for around 87% of the portfolio. Manufacturing advances are 37%, while the remaining comprises loans to traders, services and small business enterprises. Furthermore, the top 50 exposures account for 25-30% of the advances on steady state basis. The high level of concentration exposes the bank to asset quality pressures. This is because SMEs and MSMEs remain more vulnerable to economic slowdowns than large corporate entities given their relatively weak financial risk profiles, customer concentration in revenue and dependence on a single line of operations.

 

  • Exposure to risks inherent in the urban cooperative banking sector: Considering the regulatory framework, organisation structure and track record of operations, urban cooperative banks in India have certain inherent risks, such as lack of market access for raising capital, dual control of state or central governments and the RBI, and exposure to reputational risks.

Liquidity: Adequate

Liquidity is driven by the comfortable asset-liability management profile. The bank has scheduled category status, which gives it access to systemic liquidity. It has no negative cumulative mismatch over the one-year bucket. Furthermore, it maintains liquidity in the form of investments in excess statutory liquidity ratio, government financial institutions and liquid funds of 10-11% on steady state basis. Additionally, the CD ratio was comfortable around 51.43% as on September 30, 2023.

Rating Sensitivity factors

Upward factors:

  • Sustained improvement in asset quality with GNPAs below 3%
  • Reduction in concentration within the top 100 advances and their proportion in the overall book size below 20%
  • Improvement in the business of the bank

 

Downward factors:

  • Decline in overall CAR below 12%
  • Increase in credit cost above 1% weakening the profitability

About the bank

TJSB was incorporated in 1972 by Mr BK Patwardhan, a chartered accountant, to extend credit services to SMEs. The bank has 136 branches across Maharashtra (Thane, Mumbai, Navi Mumbai, Kolhapur, Nashik and Pune), Karnataka, Goa, Gujarat and Madhya Pradesh. It had 65,851 regular members as on March 31, 2023. It received the scheduled bank status in 1996 and became a multistate scheduled cooperative bank in November 2008. It is a category–I authorised dealer for foreign exchange and has been operating in this segment since July 2010. In fiscal 2008, it acquired two cooperative banks, Navjeevan Nagri Sahakari Bank Ltd, Pune, and Shree Sadguru Jangli Maharaj Sahakari Bank, Chinchwad, in Maharashtra.

Key Financial Indicators

Particulars

Unit

September 2023^

March 2023

March 2022

March 2021

Total assets

Rs crore

16,370

16,448

16,282

14,773

Total interest income

Rs crore

607

1,111

1,014

1,015

Profit after tax

Rs crore

115

172

155

163

Gross NPA

%

4.9

3.9

3.93

4.23

Overall CAR

%

17.8

16.9

15.3

16.16

Return on assets

%

1.4

1.1

1.12

1.25

^ As per off-site surveillance statement (OSS) which is unaudited

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Bank guarantee NA NA NA 75 NA CRISIL A1
NA Bank guarantee NA NA NA 15 NA CRISIL A1
NA Bank guarantee NA NA NA 30 NA CRISIL A1
NA Bank guarantee NA NA NA 55 NA CRISIL A1
NA Bank guarantee NA NA NA 40 NA CRISIL A1
NA Bank guarantee NA NA NA 10 NA CRISIL A1
NA Bank guarantee NA NA NA 15 NA CRISIL A1
NA Bank guarantee NA NA NA 25 NA CRISIL A1
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non-Fund Based Facilities ST 265.0 CRISIL A1   --   -- 27-12-22 CRISIL A1 12-10-21 CRISIL A1 CRISIL A1
      --   --   --   -- 01-10-21 CRISIL A1 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 10 Union Bank of India CRISIL A1
Bank Guarantee 15 IDBI Bank Limited CRISIL A1
Bank Guarantee 25 ICICI Bank Limited CRISIL A1
Bank Guarantee 75 Bank of India CRISIL A1
Bank Guarantee 15 Canara Bank CRISIL A1
Bank Guarantee 30 HDFC Bank Limited CRISIL A1
Bank Guarantee 55 YES Bank Limited CRISIL A1
Bank Guarantee 40 Punjab National Bank CRISIL A1
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Banks and Financial Institutions
CRISILs Criteria for rating short term debt

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