ICRA has reaffirmed the 'AAA' rating with a 'stable' outlook to Rs13 billion Tier II bonds of State Bank of Bikaner and Jaipur (SBBJ).

The highest credit quality rating factors in SBBJ's strong parentage, operational and management synergies with parent State Bank of India (SBI), SBBJ's well established franchise in its primary geographical area of operations (State of Rajasthan) backed by the 'State Bank' brand. The rating also factors in SBBJ's healthy deposits profile & comfortable liquidity position and adequate profitability which provides cushion to absorb increase in credit provisioning to some extent.

ICRA has noted with concern deterioration in SBBJ's asset quality profile (Gross NPA% + 35% of restructured accounts) increased from 4.8% as on March 2012 to 5.9% as on March 2013 and 6.5% as on December 2013. SBBJ's net NPAs increased from 2.27% as on March 2013 to 2.44% as on December 2013 while net NPA to net worth remained at 28% as on December 2013 as against 27% as on March 2013. It would be critical for SBBJ to improve its asset quality profile.

As for capitalization, SBBJ's capitalisation profile remains adequate (CRAR at 11.12% and Tier I capital at 8.39% as per Basel III norms as on December 2013) though SBBJ would be dependent on SBI for fresh capital raising for meeting higher capital requirements under Basel III norms as well as for business growth. Nevertheless, SBBJ's relatively better internal capital generations keeps its external capital requirement low (SBBJ's return on net worth was 12.85% during 9M FY14 vis-a-vis peer associate banks' return on net worth of 5-10% during the same period. 

ICRA expects the bank to maintain an adequate liquidity profile on the back of its strong parentage and the franchise imparting a stable deposit base. Furthermore, SBBJ's term deposits are fairly granular with deposits of ticket size of less than Rs 15 lacs accounting for around 60% of total term deposits as on December 2013. 

Shares of the company gained Rs 7, or 1.96%, to trade at Rs 364.10. The total volume of shares traded was 15,821 at the BSE (12.50 p.m., Wednesday).