STATE BANK OF HYDERABAD

Upper Tier II Bond Issue CARE AAA

Lower Tier II Bond Issue CARE AAA

Rating bank in terms of assets and market share, and the

attendant business synergies in critical areas like credit,
CARE has assigned a ‘CARE AAA [Triple A]’ rating to
treasury, technology, financial flexibility etc.
the proposed Upper Tier II Bonds of Rs.1250 crore and
Lower Tier II Bonds of Rs.200 crore issue of State Bank Background:
of Hyderabad (SBH). The Upper Tier II Bonds would
State Bank of Hyderabad is a 100% owned subsidiary
have a maximum tenure of 180 months from the date of
of the State Bank of India (SBI) and is presently the
allotment and Lower Tier II Bonds would have a
maximum tenure of 120 months from the date of
Financial Results
allotment. Instruments with this rating are considered
(Rs.crore)
to be of the best credit quality, offering highest safety
For the period ended/As on 31/03/05 31/03/06 31/03/07
for timely servicing of debt obligations. Such instruments
carry minimal credit risk. Working results
Interest income 2325 2749 3489
The rating factors in the long standing operations of the Total operating income 2747 3339 3947
bank spread over 65 years, its position as one of the Interest expense 1363 1655 2135
premier banks in Andhra Pradesh having a significant Operating expenses 1080 1120 1067
market share, sustained business growth in the past, Provision for NPAs 0 85 46
high technology orientation characterized by 100% PAT 251 427 506
implementation of Core Banking Solution (CBS), good Net Interest income 962 1094 1355
asset quality, improving core profitability and
Financial Position
comfortable capital adequacy position.
Deposits 28930 34025 41503
Upper Tier II Bonds are hybrid instruments which carry Advances 15600 20863 28109
a lock in clause providing for non payment of regular Investments 14559 14256 13919
interest and principal under specified conditions. As per Equity Capital 17 17 17
RBI regulations concerning issue of Upper Tier II bonds, Net worth 1735 2114 2541
principal and interest on these bonds shall be deferred Total Assets 34891 40630 49052
if the bank’s CAR is below the minimum stipulated ratio Key ratios
prescribed by RBI or if the impact of the aforesaid
Net Int. margin (Net Int./
payment results in CAR falling below or remaining below
Avg. total assets) (%) 2.94 2.90 3.02
the minimum stipulated ratio prescribed by RBI. As per
ROTA (PAT/Avg. total assets) (%) 0.77 1.13 1.13
CARE’s definition of default, any non payment of interest
Yield on Advances (%) 8.09 8.15 9.03
following the invocation of the above mentioned ‘lock
Cost of deposits (%) 4.80 4.98 5.36
in’ clause would constitute as an event of default and
C/D ratio (times) 0.54 0.61 0.68
as such, these instruments may exhibit somewhat
Int. coverage (before prov.) (times) 1.31 1.40 1.47
sharper migration of rating as compared to conventional
Tier I Capital Adequacy Ratio (%) 7.58 8.95 8.25
subordinated debt instruments.
Overall Capital Adequacy Ratio (%) 11.74 12.08 12.51
The stand alone credit quality of SBH is further Net NPAs/Net Advances (%) 0.61 0.36 0.22
strengthened by way of it being a wholly owned Net NPAs/Networth (%) 5.50 3.57 2.41
subsidiary of State Bank of India (SBI), India’s largest Provision coverage (%) 81.87 82.15 81.63

CREDIT ANALYSIS & RESEARCH LIMITED 1

largest Associate Bank of SBI. As on March 31, 2007,
SBH’s deposits and advances stood at Rs.41,503 crore
and Rs.28,109 crore respectively.
Liability Profile:
Deposits accounted for more than 80% of the liabilities
over the last few years. Deposits registered a growth of
22% during Mar’06-Mar’07 period, higher than the 18%
growth during the previous one year period.
Financials:
Total income registered a 23% growth in FY’07 driven
mainly by the interest income which grew by 27% on
the back of high advances growth rate (35%). Non
interest income for FY07 was at FY06 levels.
The bank’s yield on advances improved from 8.15% for
FY’06 to 9.03% for FY’07. The cost of deposits
increased from 4.98% for FY’06 to 5.36% for FY’07.

Assets Profile:
Total Asset base of SBH grew by 21% during FY’06-07.
Advances registered a high 35% growth in this period
on the back of a similar growth in the previous one year
period, while investments declined marginally by 2%
during FY’07.
Asset Quality:
Net interest margin showed a declining trend till FY06,
while in FY’07, it improved to 3.02% from 2.90%. With
a high growth in assets, ROTA remained stable at 1.13%
in FY’07. The Bank’s Credit-Deposit Ratio has been
rising and was 68% as on March 31, 2007 as against
61% as on March 31, 2006 with the incremental credit-
deposit ratio being 97% in FY’07 indicating higher growth
in SBH’s deposits than advances.

Over the last five years, there was a perceptible
improvement in SBH’s Net NPAs as a % of advances.
Gross and Net NPA% as on March 31, 2007 were 1.24%
and 0.22% respectively. Provision coverage was a high
82% as on March 31, 2007.
SBH’s overall CRAR has been well above the prudential
guidelines of RBI and stood at 12.51% as on March 31,
2007, with a high Tier I CRAR of 8.25%. Net NPA/
Networth ratio has been on the decline and stands at
2.41%.

For Further details please contact at : June 2007

CREDIT ANALYSIS & RESEARCH LIMITED

4th floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (E), Mumbai - 400 022.
Tel.: (022) 6754 3456
Fax : (022) 6754 3457
E-mail : care@careratings.com

Disclaimer
CARE’s ratings are opinions on credit quality and are not recommendations to buy, sell or hold any security. CARE has
based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however,
guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions
or for the results obtained from the use of such information. Most issuers of securities rated by CARE have paid a
credit rating fee, based on the amount and type of securities issued.

2 CAREVIEW