Rating Rationale
December 12, 2019 | Mumbai
Bank of Baroda
'CRISIL AA+/Negative' assigned to Tier I Bonds (Under Basel III) 
 
Rating Action
Rs.1850 Crore Tier I Bonds (Under Basel III) CRISIL AA+/Negative (Assigned)
Tier-II Bond Issue (Under Basel III) Aggregating Rs.2000 Crore CRISIL AAA/Stable (Reaffirmed)
Lower Tier II Bonds (Under Basel II) Aggregating Rs.500 Crore CRISIL AAA/Stable (Withdrawn)
Tier I Perpetual Bonds (Under Basel II) Aggregating Rs.949.8 Crore (Reduced from Rs.2150 Crore)  CRISIL AAA/Stable (Reaffirmed)
Upper Tier II Bonds (Under Basel II) Aggregating Rs.2000 Crore (Reduced from Rs.5000 Crore) CRISIL AAA/Stable (Reaffirmed)
Rs.3000 Crore Tier I Bonds (Under Basel III)  CRISIL AA+/Negative (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AA+/Negative' rating on the Tier I Bonds (under Basel III), while reaffirming its ratings on the Tier II Bonds (under Basel III), Lower Tier II Bonds (under Basel II), Tier I Perpetual Bonds (under Basel II) and Upper Tier II Bonds (under Basel II) of Bank of Baroda (BoB) at 'CRISIL AAA/Stable'. The rating on the Tier I Bonds (under Basel III) has been reaffirmed at 'CRISIL AA+/Negative'.
 
CRISIL has also withdrawn its rating on Upper Tier II Bonds (Under Basel II) worth Rs 3000 crore, Tier I Perpetual Bonds (Under Basel II) Rs. 1200.20 crore and Lower Tier II Bonds (Under Basel II) Rs. 500 crore (See Annexure 'Details of Rating Withdrawn' for details) in line with its withdrawal policy. CRISIL has received an independent verification that these instruments are fully redeemed.
 
The ratings on the debt instruments of BoB continue to factor in the expectation of strong support from majority owner, Government of India (GoI), established franchise and strong market position in the Indian banking sector, adequate capitalization and resource profile. The ratings also factor in BoB's elevated asset quality metrics especially in its corporate portfolio and modest profitability for its rating category.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profile of BoB and its subsidiaries. This is because of majority shareholding, business and financial linkages and shared brand. The ratings on BoB's debt instruments continue to factor in strong support expected from its majority owner, the GoI (69.23% shareholding as on September 30, 2019). This is because GoI is both the majority shareholder in public sector banks (PSBs) and the guardian of India's financial system. The stability of the banking sector is of prime importance to GoI, given the criticality of the sector to the economy, the strong public perception of sovereign backing for PSBs, and the severe implications of any PSB failure in terms of political fallout, systemic stability, and investor confidence in public sector institutions.

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Strong expectation of support from Government of India (GoI)
The ratings continue to factor in an expectation of strong government support, both on an ongoing basis and in the event of distress. This is because GoI is both the majority shareholder in PSBs and the guardian of India's financial system. The stability of the banking sector is of prime importance to GoI, given the criticality of the sector to the economy, the strong public perception of sovereign backing for PSBs and the severe implications of any PSB failure in terms of political fallout, systemic stability and investor confidence in public sector institutions. CRISIL believes that the majority ownership creates a moral obligation on GoI to support the PSBs included BoB. As a part of 'Indradhanush' framework, government has pledged to infuse at least Rs 70,000 crore in PSBs during fiscal 2015 to 2019, of which Rs 25,000 crore each was infused in fiscal 2016 and fiscal 2017. Further in October 2017, the government had outlined a recapitalisation package of Rs 2.11 lakh crores over fiscals 2018 and fiscal 2019, out of which PSBs received Rs 88,139 crore from the government in fiscal 2018. The government allocated Rs 70,000 crore for capital infusion in fiscal 2020 out of which Rs 55,250 crore was proposed to be infused in the 10 merged PSBs. BoB was allocated Rs 5375 crore in fiscal 2018 and Rs 7,000 crore in fiscal 2020. CRISIL believes that GoI will continue to provide distress support to all PSBs including BoB and will not allow any of them to fail. It will also support them in meeting Basel III capital regulations.

* Established franchise and strong market position in the Indian banking sector
Currently BoB is among India's five largest banks by asset size with total assets of Rs 10,72,753 crore as on September 30, 2019 (Rs 10,81,909 crore as on April 1, 2019) and had a share of around 5.1% of domestic banking system's assets end March 31, 2019. BoB had a share of around 6.3% and around 6.1% in the industry's deposits and advances, respectively on same date.  It is one of the most geographically diversified PSBs with international presence spanning across 100 offices in 21 countries and bank's international operations contributing to 14% of total business as on September 30, 2019 (14% end March 31, 2019 for amalgamated entity and 21% as on September 30, 2018 for solo entity). 

As on September 30, 2019, the bank's net advances stood at Rs 6,37, 340 crore, up 2.9% Y-o-Y, of which 84% were domestic while the remaining 16% were international loans. Overall, the share of domestic loans in the total loans has been on a rise. End H1 fiscal 2020, the domestic advances stood at 533,174 crore, up 1.9% Y-o-Y driven by strong growth in retail loans, particularly the home loan portfolio. On the other hand, the relatively low-yield international loan portfolio continued to sequentially contract and stood at Rs 104,166 crore, up 8.6% Y-o-Y.

* Adequate capitalisation
BoB remains adequately capitalized with Tier I and overall CAR (under Basel III) at 10.91% and 12.98% respectively as on September 30, 2019 (9.72% and 11.77% respectively as on April 1, 2019). The bank's networth coverage for net NPA improved to 2.57 times as on September 30, 2019, up from 2.38 times as on March 31, 2019. BoB has also reported profits during H1 fiscal 2020. CRISIL believes that BoB will be able to maintain adequate capitalisation over the medium term, backed by capital support from GoI.

* Stable resource profile
BoB has a large, stable and diversified resource profile. The bank has a large deposit base that grew by 2.1% Y-o-Y to Rs 8,94,130 crore as on September 30, 2019 (Rs 915,159 crore as on March 31, 2019). Owing to strong international presence, BoB generates about 12% of its deposits from overseas that adequately support and provide geographical diversity to the bank's resource profile. Overall, the bank's current and savings account (CASA) deposits grew by 5.98% Y-o-Y translating into CASA ratio of 34.9% as on September 30, 2019 (34.02% as on March 31, 2019). With high share of CASA deposits, the bank has been able to keep its costs of deposits under control. The annualized cost of deposits for the half year ending September 30, 2019 stood at 5%, slightly up from 4.9% for the corresponding period last year.

However, overall CRISIL believes that BoB will maintain an adequate resource profile over the medium term given its well spread branch network, diversified investor base and access to international deposits.

Weaknesses
* Modest asset quality
BoB's asset quality, though marginally improving, remains modest with reported gross NPA at 10.25% as on September 30, 2019 up from 10.02% as on March 31, 2019. The absolute quantum of GNPA stood at Rs 69,969 crore as on September 30, 2019 (up from Rs 69,924 crore as on March 31, 2019). With improvement in provision coverage, the net NPA ratio stood at 3.91% as on September 30, 2019 (3.65% as on March 31, 2019). End September 30, 2019, the CRSIL adjusted provision coverage ratio (PCR) stood at around 64% (66% as on March 31, 2019, which was one of the highest among PSBs. The slippages for the half year ending September 30, 2019 stood at Rs 13,883 crore translating into annualized slippages ratio of 3.9% (down from 4.9% in fiscal 2019). The bank's exposure to NCLT accounts stood at a total of Rs 49,798 crore as on September 30, 2019 with an average provision coverage of about 87%.  While the bank is working on stabilising and improving its asset quality, BoB's ability to contain slippages and ensure recoveries in a sustainable manner remain some of the key rating monitorables.

* Modest profitability for the rating category
Over the last few years, BoB's profitability has been impacted by asset quality pressures and has remained modest for its rating category. For the half year ending September 30, 2019, the bank reported return on average assets (annualised) at 0.27%. The improvement was driven by margin expansion amid lower cost of funds, as well as by controlled credit costs. The bank has been taking steps to improve pre-provisioning profitability, such a focus on higher margin business, increase its digital footprint, and growing its fee based income. However, some of these measures could yield results over a longer period. The ability to sustain and improve profitability hereon would remain a monitorable.

Liquidity Superior
The Liquidity Coverage Ratio of the Bank stood at 125% as on March 31, 2019, as against statutory minimum of 100% from January 1, 2019. The bank's liquidity also benefits from access to systemic sources of funds, such as the liquidity adjustment facility from RBI and access to the call money market.

Outlook: Stable the Tier II Bonds (under Basel III), Lower Tier-II bonds (under Basel II), Tier-I Perpetual Bonds (under Basel II) and Upper Tier II Bonds (under Basel II)
CRISIL believes that BoB will continue to benefit from strong support from GoI. The bank's asset quality and earnings profile are however, expected to remain modest over the medium term.

Rating Sensitivity Factors
Downward Factors
*Increase in slippages resulting in Gross NPA ratio rising above 12%.
*Significant deterioration in earnings profile.

Outlook: Negative on the Tier-I Bonds (under Basel III)
CRISIL believes that the earnings profile will remain modest over the medium term and consequently the Bank's eligible reserves ratio will remain at current levels.

Rating Sensitivity Factors
Upward factors
*If the eligible reserves to total assets ratio increases to above 4%

Downward Factors
*If there is no material improvement in the eligible reserves to total assets ratio from current levels.
*Downward revision in Tier-II bonds will result in corresponding change in rating of Tier-I bonds (under Basel III).

About the Bank 
Incorporated in 1908 as a privately owned institution headquartered in Vadodara, BoB expanded its operations through mergers and acquisitions before being nationalized in 1969. GoI shareholding in BoB stood at 69.23% as on September 30, 2019. Presently, BoB is amongst the five largest banks in India with a domestic branch network of 9449 branches, of which 58% are located in rural and semi urban areas. BoB also has a large international presence amongst Indian banks with 100 overseas offices across 21 countries.
Key Financial Indicators (Bank of Baroda - Standalone)
As on/for the half year ended September 30 Unit 2019
(Amalgamated Entity)
2018*
Total Assets Rs crore 10,72,753 741,434
Total income (net of interest expenses) Rs crore 18,265 11,373
Profit after tax Rs crore 1,447 954
Gross NPA % 10.25 11.78
Overall capital adequacy ratio (for Banks) % 12.98 11.88
Return on assets (annualized) % 0.27 0.26
*numbers are pre-amalgamation

Key Financial Indicators (Bank of Baroda - Consolidated)
As on/for the half year ended September 30 Unit 2019
(Amalgamated Entity)
2018*
Total Assets Rs crore 11,12,831 771,782
Total income (net of interest expenses) Rs crore 19,956 12,881
Profit after tax Rs crore 1687 1342
Gross NPA % - -
Overall capital adequacy ratio (for Banks) % 13.45 12.55
Return on assets (annualized) % 0.35 0.35
*Numbers are pre-amalgamation

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Instrument Date of Allotment Coupon rate (%) Maturity Date Amount in Cr Rating assigned with Outlook
NA Basel III Additional Tier I Bond^ NA NA NA 1850 CRISIL AA+/Negative
NA Basel III Additional Tier I Bond^ NA NA NA 1650 CRISIL AA+/Negative
INE028A08109 Basel III Additional Tier I Bond 01-Aug-17 8.60% Perpetual (Call option date 1stAugust, 2022) 500 CRISIL AA+/Negative
INE028A08117 Basel III Additional Tier I Bond 11-Aug-17 8.65% Perpetual (Call option date 11thAugust, 2022) 850 CRISIL AA+/Negative
INE028A08042 Tier-II Bond Issue 01-Nov-13 9.80% 01-Nov-23 1,000 CRISIL AAA/Stable
INE028A08059 Tier-II Bond Issue 17-Dec-13 9.73% 17-Dec-23 1,000 CRISIL AAA/Stable
INE028A09123 Upper Tier II Bonds 08-Jul-09 8.54% 08-Jul-24 500 CRISIL AAA/Stable
INE028A09156 Upper Tier II Bonds 31-May-10 8.48% 31-May-25 (Call option date 31st May 2020) 500 CRISIL AAA/Stable
INE028A09164 Upper Tier II Bonds 30-Jun-10 8.48% 30th June 2025  (Call option date 30th June 2020) 500 CRISIL AAA/Stable
INE028A09172 Upper Tier II Bonds 10-Aug-10 8.52% 10th Aug 2025 (Call option date 10th Aug 2020) 500 CRISIL AAA/Stable
INE028A09180 Tier I Perpetual Bonds 27-Aug-10 9.05% Perpetual (Call option date 27th August 2020) 711.5 CRISIL AAA/Stable
NA Tier I Perpetual Bonds ^ NA NA NA 238.3 CRISIL AAA/Stable
^Rated but unutilized
 
Annexure - Details of Rating Withdrawn
ISIN Instrument Date of Allotment Coupon rate (%) Maturity Date Amount in Cr
INE028A09115 Upper Tier II Bonds 08-Jun-09 8.38% 8th June 2024 (Call option date 8th June 2019) 500.00
INE028A09065* Upper Tier II Bonds 28-Dec-07 9.30% Call option date 28.12.2017 500.00
INE028A09073* Upper Tier II Bonds 04-Jan-08 9.30% Call option date 04.01.2018 1000.00
INE028A09099 Upper Tier II Bonds 04-Mar-09 9.15% 4th March 2024 (Call option date on 4th March 2019) 1000.00
INE028A09081 Tier I Perpetual Bonds 30-Jan-09 8.90% Perpetual (Call option date  30th January 2019 ) 300.20
INE028A09131 Tier I Perpetual Bonds 09-Oct-09 9.20% Perpetual (Call option date  9th October 2019 ) 300.00
INE028A09149 Tier I Perpetual Bonds 23-Nov-09 9.15% Perpetual (Call option date 23rd November 2019) 600.00
INE028A09107 Lower Tier II Bonds 12-Mar-09 8.95% 12-Apr-18 500.00
 
Annexure - List of Entities Consolidated 
Entity consolidated % held Rationale for consolidation
BoB Financial Solutions Limited 100% Subsidiary
BoB Capital Markets Limited 100% Subsidiary
Baroda Global Shared Services Limited 100% Subsidiary
Baroda Sun Technologies Ltd 100% Subsidiary
Baroda Asset Management India Ltd 100% Subsidiary
Baroda Trustee India Pvt. Limited 100% Subsidiary
Bank of Baroda (Botswana) Limited 100% Subsidiary
Bank of Baroda (Guyana) Inc 100% Subsidiary
Bank of Baroda (New Zealand) Limited 100% Subsidiary
Bank of Baroda (Tanzania) Limited 100% Subsidiary
Bank of Baroda (Trinidad & Tobago) Limited 100% Subsidiary
Bank of Baroda (Ghana) Limited 100% Subsidiary
Bank of Baroda (UK) Limited 100% Subsidiary
Bank of Baroda (Kenya) Limited 86.7% Subsidiary
Nainital Bank Limited 98.57% Associate
Indo-Zambia Bank Limited 20% Associate
India First Life Insurance Company Limited 44% Joint Venture
India Infradebt Limited 40.99% Joint Venture
India International Bank (Malaysia), Berhad 40% Joint Venture
Baroda Uttar Pradesh Gramin Bank 35% Regional Rural Banks
Baroda Rajasthan Gramin Bank 35% Regional Rural Banks
Baroda Gujarat Gramin Bank 35% Regional Rural Banks
BOB(UK)Limited 100% Overseas Non-Banking Subsidiary 
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Lower Tier-II Bonds (under Basel II)  LT  0.00
12-12-19 
Withdrawn  11-01-19  CRISIL AAA/Stable  19-09-18  CRISIL AAA/Stable  07-09-17  CRISIL AAA/Negative  10-03-16  CRISIL AAA/Negative  CRISIL AAA/Stable 
            25-01-18  CRISIL AAA/Stable  21-07-17  CRISIL AAA/Negative       
                27-03-17  CRISIL AAA/Negative       
Perpetual Tier-I Bonds (under Basel II)  LT  949.80
12-12-19 
CRISIL AAA/Stable  11-01-19  CRISIL AAA/Stable  19-09-18  CRISIL AAA/Stable  07-09-17  CRISIL AAA/Negative  10-03-16  CRISIL AAA/Negative  CRISIL AAA/Stable 
            25-01-18  CRISIL AAA/Stable  21-07-17  CRISIL AAA/Negative       
                27-03-17  CRISIL AAA/Negative       
Tier I Bonds (Under Basel III)  LT  4850.00
12-12-19 
CRISIL AA+/Negative  11-01-19  CRISIL AA+/Negative  19-09-18  CRISIL AA+/Negative  07-09-17  CRISIL AA+/Negative    --  -- 
            25-01-18  CRISIL AA+/Negative  21-07-17  CRISIL AA+/Negative       
Tier II Bonds (Under Basel III)  LT  2000.00
12-12-19 
CRISIL AAA/Stable  11-01-19  CRISIL AAA/Stable  19-09-18  CRISIL AAA/Stable  07-09-17  CRISIL AAA/Negative  10-03-16  CRISIL AAA/Negative  CRISIL AAA/Stable 
            25-01-18  CRISIL AAA/Stable  21-07-17  CRISIL AAA/Negative       
                27-03-17  CRISIL AAA/Negative       
Upper Tier-II Bonds (under Basel II)  LT  2000.00
12-12-19 
CRISIL AAA/Stable  11-01-19  CRISIL AAA/Stable  19-09-18  CRISIL AAA/Stable  07-09-17  CRISIL AAA/Negative  10-03-16  CRISIL AAA/Negative  CRISIL AAA/Stable 
            25-01-18  CRISIL AAA/Stable  21-07-17  CRISIL AAA/Negative       
                27-03-17  CRISIL AAA/Negative       
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Banks and Financial Institutions
CRISILs Criteria for Consolidation
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support
Rating Criteria for Hybrid Capital instruments issued by banks under Basel II guidelines
Rating criteria for Basel III - compliant non-equity capital instruments

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