ICRA Nepal assigns Grade 4 to upcoming 130% right share of Saptakoshi Dev Bank

ICRA Nepal has assigned [ICRANP] IPO Grade 4 to the upcoming 130% right share of Saptakoshi Development Bank Limited (SKDBL), indicating below-average fundamentals. The process of issuing right shares is currently in SEBON pipeline for review. As per ICRA Nepal, the grading is constrained by high geographical concentration risk of the bank as more than 70% of its business is concentrated within one district. Likewise, it has small scale operations, limited track record, recent conflict between directors and increase in non-performing loans. As per ICRA Nepal, the grading is further hampered by the development bank’s high cost of operations, lack of diversification in earnings profile, lack of institutional promoters and stiff competition with commercial banks that have been providing better lending rates. However, the grading factors in the bank’s ability to achieve adequate growth over the last two years, current and savings account profile and management experience/reputation in its area of operations. Going forward, SKDBL’s ability to scale up its operations ensuring efficient utilization of existing as well as additional capital, improve its profitability profile whilst maintaining healthy assets quality indicators would have a bearing on the overall financial profile. ICRA Nepal assigns IPO/Rights issue 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 position within the grading categories concerned. Thus, the grading of 2+, 3+ and 4+ are one notch higher than 2, 3, and 4, respectively. SKDBL has earned net profit of Rs 1.66 crore in the third quarter of the FY 2073/74. Its paid up capital currently stands at Rs 21 crore. After the issuance of 130% right share, its paid up capital will reach Rs 48.30 crore.