ICRA Nepal assigns ICRA Grade 4+ indicating below average fundamentals to upcoming 15% right issue of Kamana Sewa Bikas Bank

ICRA Nepal has assigned “[ICRANP] IPO Grade 4+”, indicating below average fundamentals to the proposed rights issue amounting Rs 30.942 crore of Kamana Sewa Bikas Bank Limited (KSBBL). SEBON had approved KSBBL to issue 15% rights issue of 3,094,154.78 numbers of equity shares, each with face value of Rs 100, to be issued to existing shareholders at par on Poush 24,2074. The proposed capital injection is targeted towards ensuring regulatory minimum paid up capital of Rs 2.5 arba for national level class B Development Banks. According to ICRA Nepal, the above average fundamental grading was factored in by the bank’s established track record and the scale advantage of going forward being a national level development bank along with comfortable capitalization profile, experienced management team, diversified franchise (40 branches and one head office across 14 districts) with rapid branch expansion plans of management.. KSBBL also demonstrated the ability of healthy growth of round 21% higher than the industry average of 19%, which further factored the above average grading. ICRA Nepal has also taken into account the bank’s highly granular portfolio and adequate profitability indicators reported by the bank in the past, notwithstanding the stress seen in 1st quarter of FY 2018 due to increased delinquencies. However, the grading was restricted due to  relatively weak competitive positioning of KSBBL as well as  marginal borrower profile in front of large class A commercial banks with finer lending rates. Higher decline in the bank’s low cost CASA deposits compared to industry (from 54% on Jul-16 to 41% on Oct-17 vs. 54% and 44% for industry) and the resultant higher cost of funds among peers (8.68% for 1st quarter of FY 2018) also was a reason of restriction in the grading.  However, increasing the paid-up capital to Rs 2.5 arba is expected to remain adequate to support KSBBL’s growth plans. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. For the grading categories 2, 3 and 4, the sign of + (plus) appended to the grading symbols indicate their relative positioning within the grading categories concerned. Thus, the grading of 2+, 3+ and 4+ are one notch higher than 2, 3, and 4 respectively. It had earned net profit of Rs 20.61 lakh in the first quarter of fiscal year 2074/75.