Rating Rationale
July 13, 2020 | Mumbai
Bank of Baroda
'CRISIL AA+/Negative' assigned to Tier I Bonds (Under Basel III)
 
Rating Action
Rs.4500 Crore Tier I Bonds (Under Basel III) CRISIL AA+/Negative (Assigned)
Rs.850 Crore Lower Tier-II Bonds (Under Basel II)* CRISIL AAA/Stable (Reaffirmed)
Tier-II Bond Issue (Under Basel III) Aggregating Rs.2000 Crore  CRISIL AAA/Stable (Reaffirmed)
Tier I Perpetual Bonds (Under Basel II) Aggregating Rs.949.8 Crore  CRISIL AAA/Stable (Reaffirmed)
Upper Tier II Bonds (Under Basel II) Aggregating Rs.2000 Crore CRISIL AAA/Stable (Reaffirmed)
Rs.3000 Crore Tier I Bonds (Under Basel III)  CRISIL AA+/Negative (Reaffirmed)
Rs.1850 Crore Tier I Bonds (Under Basel III) CRISIL AA+/Negative (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*transferred from Dena Bank
Detailed Rationale

CRISIL has assigned its 'CRISIL AA+/Negative' rating on the Tier I Bonds (under Basel III) and reaffirmed 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 other Tier I Bonds of Rs 4850 crore (under Basel III) has been reaffirmed at 'CRISIL AA+/Negative'. CRISIL has also withdrawn its rating on the Upper Tier II Bonds (Under Basel II) of Rs.1000 crore (See Annexure 'Details of Rating Withdrawn' for details) on confirmation from the trustee as they are fully redeemed. The rating is withdrawn and is in line with CRISIL's policy.
 
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.
 
The nationwide lockdown (originally till April 14, 2020) declared by the Government of India to contain the spread of the Novel Coronavirus (Covid-19) will have near-term impact on disbursements, collections and asset quality of BoB. The lockdown is now further extended till July 31, 2020 in containment zones with re-opening of prohibited activities in a phased manner in areas outside containment zones. However, certain states have extended the lockdown till July 31, 2020. Herein, CRISIL believes that eventual lifting of restrictions will continue to be in a phased manner. Any delay in return to normalcy will exert further pressure on collections and hence asset quality metrics.
 
BOB has also offered moratorium to its borrowers and hence, collections are expected to be low in the near term. Further, any change in the behavior of borrowers on payment discipline can affect delinquency levels post the moratorium. Given this, gross non-performing assets (NPAs) of BoB, on a standalone basis, could increase from current levels. This in turn could lead to higher credit cost thereby impacting the profitability of the bank and will remain a key monitorable.

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 (71.60% shareholding as on March 31 2020). 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 11,57,916 crore as on March 31, 2020 (Rs 10,81,9092 crore as on April 1, 2019) with a share of around 6-7% as on March 31, 2020. On the deposits front too, the bank has Rs 9, 45,984 crores of deposits as of March 31, 2020, reflecting a share of around 6-7% as on the same date. It is one of the most geographically diversified public sector banks (PSBs) with international presence spanning across 100 offices in 21 countries and bank's international operations contributing to 16% of total business as on March 31, 2020 (14% end March 31, 2019 for amalgamated entity).  
 
As on March 31, 2020, the bank's net advances stood at Rs 6, 90,121 crore, up 5.9% Y-o-Y, of which 83% were domestic while the remaining 17% were international loans. Overall, the share of domestic loans in the total loans although decreased in fiscal 2020, has been on a rise over the last few fiscals. End of fiscal 2020, the domestic advances stood at 5, 70,341 crore, up 3.2% 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 stood at Rs 1, 19,780 crore, up 21.4% Y-o-Y.
 
* Adequate capitalisation
BoB remains adequately capitalized with Tier I and overall CAR (under Basel III) at 10.71% and 13.3% respectively as on March 31, 2020 (9.72%1 and 11.77%1 respectively as on April 1, 2019). The bank's networth coverage for net NPA improved to 3.3 times as on March 31, 2020, up from 2.38 times as on March 31, 2019. Capitalisation has been supported by regular infusion from GoI with the last infusion being of around Rs 7000 crores in 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 3.4% Y-o-Y to Rs 9, 45,984 crore as on March 31, 2020 (Rs 9, 15,1591 crore as on March 31, 2019). Owing to strong international presence, BoB generates about 15% 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 7.21% Y-o-Y translating into CASA ratio of 35.3% as on March 31, 2020 (34.02%1 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 cost of deposits for the year ending March 31, 2020 stood at 4.7%, slightly up from 4.5%2 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 9.4% as on March 31, 2020 down from 10.02%1 as on March 31, 2019. The absolute quantum of GNPA stood at Rs 69,381 crore as on March 31, 2020 (down from Rs 69,9241 crore as on March 31, 2019). With improvement in provision coverage, the net NPA ratio stood at 3.13% as on March 31, 2020 (3.65%1 as on March 31, 2019). End March 31, 2020, the CRISIL adjusted provision coverage ratio (PCR) stood at around 69% (66%1 as on March 31, 2019), which was one of the highest among PSBs. The slippages for the year ending March 31, 2020 stood at Rs 23,315 crore translating into slippages ratio of 3.6%. The bank's exposure to NCLT accounts stood at a total of Rs 51,844 crore as on March 31, 2020 with an average provision coverage of about 88%.  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.
 
However, amidst the current environment, asset quality metrics could deteriorate and therefore, any impact on collections and therefore, asset quality metrics remains a key monitorable.
 
* 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. While for the year ending March 31, 2020, the bank reported profit after tax and earned a return on average assets at 0.05%, at the PBT (profit before tax) level, it reported losses mainly amidst elevated provisioning. Nevertheless, 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. Consequently, there was an improvement in non-interest income in fiscal 2020. Having said that, some of these measures i.e. focus on higher margin business could yield results over a longer period. Therefore, the ability to sustain and improve profitability hereon, especially in the given environment may be challenging and would remain a monitorable.
Liquidity Superior

The Liquidity Coverage Ratio of the Bank stood at 136.27% as on March 31, 2020, as against statutory minimum of 80%. 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 for 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 71.60% as on March 31 2020. Presently, BoB is amongst the five largest banks in India with a domestic branch network of 9482 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.

1 Amalgamated entity
2 Standalone without amalgamation

Key Financial Indicators - Bank of Baroda-Standalone
As on / for the year ended March 31   2020^ 2019*
Total Assets Rs crore 11,57,916 7,80,987
Total income (net of interest expenses) Rs crore 37,769 24,775
Profit after tax Rs crore 546 434
Gross NPA % 9.40 9.61
Overall capital adequacy ratio (for Banks) % 13.30 13.42
Return on assets % 0.05** 0.06
*numbers are pre-amalgamation
^Amalgamated entity
**Calculated as an average of end year (2020 and 2019) total assets of amalgamated entity
 
Key Financial Indicators - Bank of Baroda-Consolidated
As on / for the year ended March 31   2020^ 2019*
Total Assets Rs crore 11,99,942 819,672
Total income (net of interest expenses) Rs crore 41,046 28,286
Profit after tax Rs crore 928 1100
Gross NPA % - -
Overall capital adequacy ratio (for Banks) % 13.87 14.52
Return on assets % 0.08** 0.14
*numbers are pre-amalgamation
^Amalgamated entity
**Calculated as an average of end year (2020 and 2019 (Estimated)) total assets of amalgamated entity

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Instrument Date of
Allotment		 Coupon
rate (%)		 Maturity
Date		 Amount 
in Cr 		 Complexity Levels Rating assigned 
with Outlook
NA Basel III Additional Tier I Bond^ NA NA NA 4500 Highly Complex CRISIL AA+/Negative
INE077A09104 Lower Tier II Bonds* 25-Jun-12 9.23% 25-Jun-27 850 Complex CRISIL AAA/Stable
INE028A08182 Basel III Additional Tier I Bond 18-Dec-19 8.99% Perpetual (Call option
date 18th Dec, 2024)		 1747 Highly Complex CRISIL AA+/Negative
INE028A08174 Basel III Additional Tier I Bond 28-Nov-19 8.70% Perpetual (Call option
date 28th Nov, 2024)		 1650 Highly Complex CRISIL AA+/Negative
INE028A08109 Basel III Additional Tier I Bond 01-Aug-17 8.60% Perpetual (Call option
date 1stAugust, 2022)		 500 Highly Complex CRISIL AA+/Negative
INE028A08117 Basel III Additional Tier I Bond 11-Aug-17 8.65% Perpetual (Call option
date 11thAugust, 2022)		 850 Highly Complex CRISIL AA+/Negative
INE028A08042 Tier-II Bond Issue 01-Nov-13 9.80% 01-Nov-23 1,000 Complex CRISIL AAA/Stable
INE028A08059 Tier-II Bond Issue 17-Dec-13 9.73% 17-Dec-23 1,000 Complex CRISIL AAA/Stable
INE028A09123 Upper Tier II Bonds 08-Jul-09 8.54% 08-Jul-24 500 Highly Complex CRISIL AAA/Stable
INE028A09172 Upper Tier II Bonds 10-Aug-10 8.52% 10th Aug 2025 (Call option
date 10th Aug 2020)		 500 Highly Complex CRISIL AAA/Stable
INE028A09180 Tier I Perpetual Bonds 27-Aug-10 9.05% Perpetual (Call option date
27th August 2020)		 711.5 Highly Complex CRISIL AAA/Stable
NA Tier I Perpetual Bonds ^ NA NA NA 238.3 Highly Complex CRISIL AAA/Stable
NA Basel III Additional Tier I Bond NA NA NA 103 Highly Complex CRISIL AA+/Negative
*transferred from Dena Bank
^Not yet issued
 
Annexure - Details of Rating Withdrawn
ISIN Instrument Date of Allotment Coupon rate (%) Maturity Date Amount in Cr  Complexity Levels
INE028A09156 Upper Tier II Bonds 31-May-10 8.48% 31-May-25 (Call option
date 31st May 2020)		 500 Highly Complex
INE028A09164 Upper Tier II Bonds 30-Jun-10 8.48% 30th June 2025  (Call option
date 30th June 2020)		 500 Highly Complex
 
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 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Lower Tier-II Bonds (under Basel II)  LT  850.00
13-07-20  		CRISIL AAA/Stable      24-12-19  CRISIL AAA/Stable  19-09-18  CRISIL AAA/Stable  07-09-17  CRISIL AAA/Negative  CRISIL AAA/Negative 
          --  12-12-19  Withdrawal  25-01-18  CRISIL AAA/Stable  21-07-17  CRISIL AAA/Negative   
            11-01-19  CRISIL AAA/Stable      27-03-17  CRISIL AAA/Negative   
Perpetual Tier-I Bonds (under Basel II)  LT  949.80
13-07-20  		CRISIL AAA/Stable      24-12-19  CRISIL AAA/Stable  19-09-18  CRISIL AAA/Stable  07-09-17  CRISIL AAA/Negative  CRISIL AAA/Negative 
            12-12-19  CRISIL AAA/Stable  25-01-18  CRISIL AAA/Stable  21-07-17  CRISIL AAA/Negative   
            11-01-19  CRISIL AAA/Stable      27-03-17  CRISIL AAA/Negative   
Tier I Bonds (Under Basel III)  LT  9350.00
13-07-20  		CRISIL AA+/Negative      24-12-19  CRISIL AA+/Negative  19-09-18  CRISIL AA+/Negative  07-09-17  CRISIL AA+/Negative  -- 
            12-12-19  CRISIL AA+/Negative  25-01-18  CRISIL AA+/Negative  21-07-17  CRISIL AA+/Negative   
            11-01-19  CRISIL AA+/Negative           
Tier II Bonds (Under Basel III)  LT  2000.00
13-07-20  		CRISIL AAA/Stable      24-12-19  CRISIL AAA/Stable  19-09-18  CRISIL AAA/Stable  07-09-17  CRISIL AAA/Negative  CRISIL AAA/Negative 
            12-12-19  CRISIL AAA/Stable  25-01-18  CRISIL AAA/Stable  21-07-17  CRISIL AAA/Negative   
            11-01-19  CRISIL AAA/Stable      27-03-17  CRISIL AAA/Negative   
Upper Tier-II Bonds (under Basel II)  LT  1000.00
13-07-20  		CRISIL AAA/Stable      24-12-19  CRISIL AAA/Stable  19-09-18  CRISIL AAA/Stable  07-09-17  CRISIL AAA/Negative  CRISIL AAA/Negative 
            12-12-19  CRISIL AAA/Stable  25-01-18  CRISIL AAA/Stable  21-07-17  CRISIL AAA/Negative   
            11-01-19  CRISIL AAA/Stable      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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