NABARD’s Rs.20 billion bond issue gets CRISIL ‘AAA’rating

MUMBAI: CRISIL has assigned ‘AAA/Stable’ to National Bank for Agriculture and Rural Development’s ( NABARD) bonds aggregating Rs.20 billion, and reaffirmed its outstanding ratings on its other debt programmes at ‘AAA/Stable/P1+’.

The ratings continue to be based on the support the institution receives from the Government of India, and the key public policy role the institution plays in the agriculture sector. The ratings also factor in NABARD’s strong capitalisation, robust asset protection mechanism, and adequate resource profile. These rating strengths are partially offset by the institution’s modest earnings profile.

NABARD is the apex financing agency responsible for implementing the government’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’s strong capitalisation is marked by a high Tier I (core) capital adequacy ratio (28.76% as on December 31, 2009) and low asset-related risks. The institution has a strong net worth coverage for non-performing assets (NPAs), because of its low gross NPAs and robust asset protection mechanisms; as on March 31, 2009, NPAs accounted for only 0.03 per cent of its total assets.

NABARD has a modest earnings profile, marked by low gross spreads, driven largely by lending at mandated rates and increased reliance on borrowings at market rates.

NABARD’s core profitability, measured by its net profitability margin (NPM), was 0.55 per cent during 2008-09, compared with 0.66 per cent during 2007-08. Operating expense ratio, at 0.68 per cent for 2008-09, stands higher compared with other financial institutions’ 0.20 to 0.30 per cent.

Outlook: Stable

CRISIL believes that NABARD will continue to receive strong funding and operational support from the government. The institution will maintain its healthy capitalisation and competitive resource costs. The asset protection mechanism available to NABARD is likely to continue. The outlook could be revised to ‘Negative’ if there is a reduction in government’s commitment to the agricultural and rural sectors, translating into the likelihood of decline in support to NABARD.