Rating Rationale
July 03, 2020 | Mumbai
TJSB Sahakari Bank Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.265 Crore (Reduced from Rs.320 Crore)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1' rating on the short-term bank facilities of TJSB Sahakari Bank Limited (TJSB). CRISIL has also withdrawn its rating on the Rs 55 crore bank guarantee facilities. The withdrawal is in line with CRISIL's policy on withdrawal of ratings.
 
The rating reflects the bank's adequate capital position, moderate earnings profile and adequate resource profile. These strengths are partially offset by a concentrated loan portfolio among small and medium enterprises (SMEs) and micro SMEs (MSMEs) and exposure to risks inherent in the urban cooperative banking sector.
 
The capital adequacy of the bank remains comfortable for the current scale of operations. The tier 1 capital of the bank stood at 12.0% as on March 31, 2020 as compared to 11.6% as on March 31, 2019. The overall capital adequacy of the bank stood at 15.4% as on March 31, 2020 as compared to 15.2% as on March 31, 2019. Being co-operative bank, it is not allowed to raise capital from open market, it has to remain dependent on the capital raised only from its members. Despite this, the bank has been able to maintain overall CAR in range of 13-15% during last 5 years.
 
TJSB's profitability has remained better than average earnings of the cooperative banks and private sector banks which have higher focus on MSME segment. Return on assets (RoA) for the bank has stood 0.9% for fiscal 2020 as against around 1.1% for fiscal 2019. Higher profitability continues to be driven by the bank's yields from MSMEs, traders, and other small borrowers.
 
In terms of resource profile, TJSB has outstanding deposit base increased by around 6.3% to Rs 11,373 crore as on March 31, 2020 from Rs 10,700 crore as on March 31, 2019. The proportion of CASA deposits (current account and savings account) has been stable at 27.5% as on March 31, 2020. The bank has low reliance in bulk deposits as around 74% of the term deposits are below Rs 15 lakhs ticket size. The bank's credit to deposit (CD) ratio is comfortable at around 49.6% as on March 31, 2020 as against 52.9% as on March 31, 2019.
 
The nationwide lockdown (presently effective until the end of June 2020) declared by the Government of India to contain the Covid-19 pandemic will have a near-term impact on the disbursements and collections of financial institutions. With the lockdown in its fifth stage now, there is a high likelihood that eventual lifting of restrictions will happen in a phased manner. Any delay in return to normalcy will put further pressure on the collections and asset quality metrics of companies. Additionally, any change in the behaviour of borrowers on the payment discipline can affect the delinquency levels. For TJSB, overall collection efficiency for April and May 2020 was 36% and 49%, respectively. Furthermore, the management expects steady improvement in collections in the coming months. Given the majority portfolio under the moratorium, the true performance on collections and asset quality is expected to be visible once the moratorium is concluded, that is, after August 2020.
 
These strengths are partially offset by the high concentration of the bank towards the MSME/SME segments and high top borrower and geographical concentration. The bank's top 50 exposures were around 29% of the overall advances as on March 31, 2020. The bank operates in cooperative segments, which are exposed to challenges.

Key Rating Drivers & Detailed Description
Strengths
* Adequate capital position
TJSB's capital adequacy has remained comfortable for its current scale of operations. The Tier 1 capital adequacy ratio (CAR) of the bank stood at 12.0% as on March 31, 2020, compared to 11.6% as on March 31, 2019. The overall capital adequacy of the bank stood at 15.4% as on March 31, 2020, compared to 15.2% as on March 31, 2019. The bank's Tier 1 coverage for unprovided weak assets was high at 6.7 times as on March 31, 2020, improving from around 4 times as on March 31, 2019. The bank's coverage for weak assets was high, as it has limited net non-performing assets usually. Being a cooperative bank, it is not allowed to raise capital from the open market and has to remain dependent on the capital raised only from its members. Despite this, the bank has been able to maintain overall CAR of 13-15% in the last five years.
 
* Moderate earnings profile
Return on assets (RoA) for the bank stood at 0.9% in fiscal 2020 against around 1.1% in fiscal 2019. The marginal decline in RoA is mainly due to limited incremental growth in advances in fiscal 2020. Nevertheless, the profitability of the bank remains better than the average earnings of cooperative banks and private sector banks, which have greater focus on the MSME segment.  Higher profitability continues to be driven by the bank's yields from MSMEs, traders and other small borrowers. The bank has been able to maintain its operating costs at a healthy level of 1.8% of average funds deployed, improving from 2.2% in fiscal 2020. Furthermore, the bank's yields remain at a similar level despite flat growth in the current fiscal.
 
* Adequate resource profile
TJSB's outstanding deposit base increased by around 6.3% to Rs 11,373 crore as on March 31, 2020, from Rs 10,700 crore as on March 31, 2019. The proportion of current account and savings account deposits was stable at 27.5% as on March 31, 2020. The bank has low reliance on bulk deposits, as around 74% of the term deposits are below ticket size of Rs 15 lakh. The bank's top 50 depositors comprise 8-9% of the overall deposits. Its credit to deposit (CD) ratio was comfortable at around 49.6% as on March 31, 2020, against 52.9% a year earlier. The bank has remained typically conservative in terms of asset growth; as a result, the CD ratio has remained at 49-53% in the last five years.

Weaknesses
* High concentration towards the SME and MSME segments
TJSB's portfolio is geographically and sectorally concentrated towards SMEs and MSMEs in Mumbai, Nashik and Pune, with 70-75% of the total portfolio derived from these cities. Manufacturing advances are 37%, while the remaining is comprised of loans to traders, services and small business enterprises. Furthermore, the top 50 exposures account for 25-35% of the total advances book on a 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.
 
In terms of asset quality, the gross non-performing assets (NPAs) increased to 5.85% as on March 31, 2020, from 4.7% as on March 31, 2019. This increase is largely on account of slippage of certain large assets, which were impacted by the slowdown in the MSME segment. In view of TJSB's material exposure to these sectors, like most other cooperative banks, the bank's asset quality is expected to remain exposed to asset quality pressures. Furthermore, the actual performance of the asset quality will be visible only after the moratorium period is concluded, that is, after August 2020. Nevertheless, comfort can be drawn from the aggressive provisioning policy followed by TJSB: the bank provides more than 95% on its gross NPAs, because of which the net NPAs stood at 0.4% as on March 31, 2020 (0.2% a year earlier).
 
* Exposure to risks inherent in the urban cooperative banking sector
Given the regulatory framework, organisational 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 Reserve Bank of India and exposure to reputational risks.
Liquidity Adequate

The adequate liquidity is driven by the comfortable asset liability management profile. The bank has a 'scheduled' category status; which gives it access to systemic liquidity. The bank 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 at least 10-11% on a steady state basis. Excess liquidity stood at around 15.6% as on March 31, 2020. The bank's CD ratio was comfortable at around 49.6% as on as on March 31, 2020.

Rating Sensitivity Factors
Upward factors
* Reduction in concentration towards the top 50 advances to below 15%
* Improvement in the asset quality, with gross NPAs reducing and maintained below 3%

Downward factors
* Weakening of the asset quality, with increase in gross NPAs to above 8%
* Increase in slippages of advances along with lower recoveries over a period of time.

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 has an extension counter in Pune. The bank had 48,700 regular members as on March 31, 2018. It received the scheduled bank status in 1996 and became a multi-state scheduled cooperative bank in November 2008. TJSB is a Category'I authorised dealer in 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, both in Maharashtra.
 
TJSB had deposits of Rs 11,373 crore and advances of Rs 5,641 crore as on March 31, 2020. It had CAR of 15.4% as on March 31, 2020. In fiscal 2020, profit after tax was Rs 120 crore on total income (net of interest expense) of Rs 488 crore compared to profit after tax of Rs 141 crore on total income (net of interest expense) of Rs 487 crore in the previous fiscal.

Key Financial Indicators
Particulars Unit Mar 2020 Mar 2019
Total assets Rs Crore 14195 13486
Total income Rs Crore 1176 1117
Profit after tax Rs Crore 120 141
Gross NPA % 5.85 4.7
Overall CAR  % 15.4 15.2
Return on assets % 0.9 1.2

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
 ISIN Name of Instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs.Crore)		 Complexity Level Rating assigned with outlook
NA Bank Guarantee NA NA NA 264.65 NA CRISIL A1
NA Proposed Bank Guarantee NA NA NA 0.35 NA CRISIL A1
NA Bank Guarantee NA NA NA 55.0 NA Withdrawn
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Fund-based Bank Facilities  LT/ST  265.00  CRISIL A1      26-11-19  CRISIL A1  29-10-18  CRISIL A1  28-12-17  CRISIL A2+  CRISIL A2+ 
                06-06-18  CRISIL A2+       
                22-01-18  CRISIL A2+       
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 264.65 CRISIL A1 Bank Guarantee 320 CRISIL A1
Proposed Bank Guarantee .35 CRISIL A1 -- 0 --
Bank Guarantee 55 Withdrawn -- 0 --
Total 320 -- Total 320 --
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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