Rating Rationale
August 31, 2018 | Mumbai
Bank of India
Ratings Reaffirmed 
Rating Action
Rs.1500 Crore Tier II Bonds (Under Basel III) CRISIL AA+/Stable (Reaffirmed)
Rs.1500 Crore Tier II Bonds (Under Basel III) CRISIL AA+/Stable (Reaffirmed)
Rs.3000 Crore Tier II Bonds (Under Basel III) CRISIL AA+/Stable (Reaffirmed)
Upper Tier-II Bonds Aggregating Rs.2500 Crore
(Under Basel II)
CRISIL AA+/Stable (Reaffirmed)
Perpetual Tier-I Bonds Aggregating Rs.625 Crore
(Under Basel II)
CRISIL AA+/Stable (Reaffirmed)
Perpetual Tier-I Bonds Aggregating Rs.655 Crore
(Under Basel II)
CRISIL AA+/Stable (Withdrawn)
Rs.1000 Crore Tier I Bonds (Under Basel III) CRISIL A+/Negative (Withdrawn)
Rs.500 Crore Tier I Bonds (Under Basel III) CRISIL A+/Negative (Withdrawn)
Rs.1000 Crore Tier I Bonds (Under Basel III) CRISIL A+/Negative (Withdrawn)
Rs.30000 Crore Certificate of Deposits CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has withdrawn its 'CRISIL AA+/Stable' rating on the Perpetual Tier-I Bonds (under Basel II) and its 'CRISIL A+/Negative' rating on the Tier-I Bonds (Under Basel III) of Bank of India (BoI) as there is no outstanding amount against these instruments. The withdrawal is in line with CRISIL's policy. CRISIL has reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the bank's Tier-II Bonds (under Basel III), Tier-I Perpetual Bonds and Upper Tier-II Bonds (hybrid instruments; under Basel II), and certificates of deposit programme.

The ratings continue to reflect the strong expectation of support from majority owner, Government of India; established market position; and comfortable resource profile. These strengths are partially offset by weak asset quality and earnings profile.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of BoI and all its wholly owned subsidiaries.

Key Rating Drivers & Detailed Description
* Strong expectation of support from the government: The ratings continue to factor in expectation of strong government support, both on an ongoing basis and in the event of distress. This is because the government is both the majority shareholder in public sector banks (PSBs) and the guardian of India's financial system. Stability of the banking sector is of prime importance to the government, given the criticality of the sector to the economy, 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. Majority ownership creates a moral obligation on the government to support PSBs, including BoI. As part of the Indradhanush framework, the government has pledged to infuse at least Rs 70,000 crore in PSBs between fiscals 2015 and 2019, of which Rs 25,000 crore each was infused in fiscals 2016 and 2017. Furthermore, in October 2017, the government outlined recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019, of which PSBs received Rs 88,139 crore in fiscal 2018. BoI received its allocated Rs 9232 crore out of this in fiscal 2018.

* Established market position: BoI is the fifth-largest government-owned bank with total assets of Rs 5,96,098 crore as on June 30, 2018 (Rs. 6,09,574 crore as on March 31, 2018). National presence gives it the benefit of a wide distribution network and access to retail depositors. Downsizing of the corporate loan book has resulted in some reduction in market share in the past two years. While pressure on market position may persist in the near term, it should stabilise over the medium term backed by BoI's extensive branch network.

* Comfortable resource profile: Resource profile is supported by a large deposit base and a comfortable low-cost deposit mix driven by strong presence in rural and semi-urban areas. Domestic low-cost current account and savings account deposits stood at 41.8% of total domestic deposits as on June 30, 2018 (41.3% as on March 31, 2018), compared to 39.8% as on March 31, 2017. The cost of deposits remains lower than the industry average. Additionally, the bank has a sizeable international presence (around 20% of total deposits as on June 30, 2018), which supports resource profile.

* Weak asset quality: Asset quality has remained under stress with gross non-performing assets (NPAs) at 16.7% as on June 30, 2018 (16.6% as on March 31, 2018, and 13.2% as on March 31, 2017). Asset quality weakened mainly due to higher slippages in the large and medium corporate advances portfolio, especially in the infrastructure and iron and steel exposures, which stood at 15.0% and 4.0%, respectively, of the total domestic advances as on March 31, 2018 (15.7% and 4.1%, respectively, as on March 31, 2017). While the corporate loan book contributes the most to gross NPAs, the performance of the rest of the book (including MSME [micro, small, and medium enterprise], retail, and agriculture) has also weakened with GNPAs for these segments increasing both sequentially and over the previous year. Ability to arrest slippages and affect recovery, mainly in the corporate and MSME loan book, will remain a key rating monitorable in the near term.

* Weak earnings: Earnings has weakened considerably in the past few years on account of high credit cost and subdued growth in loan book. Provisioning cost increased to 2.6% for fiscal 2018 from 2.0% for fiscal 2017 (1.7% for the quarter ended June 30, 2018, against 1.5% for the corresponding period of the previous fiscal). Credit cost remained high due to elevated slippages and ageing of NPAs. The pre-provision profit as a proportion of average assets also declined to 1.2% for fiscal 2018 from 1.6% for fiscal 2017 due to high interest reversal on NPAs, weak loan growth, and lower other income (1.2% for the quarter ended June 30, 2018). Return on assets (RoA) was 0.06% for the quarter ended June 30, 2018, against 0.05% for the corresponding period of the previous fiscal (RoA was negative 2.4% for fiscal 2018 against negative 0.24% for fiscal 2017). Nevertheless, provisioning coverage ratio (PCR) increased to 54.0% as on June 30, 2018 from 52% a year ago. The bank's ability to improve operating profits and contain credit costs will remain a key monitorable over the medium term.
Outlook: Stable (Tier II Bonds [under Basel III], Upper Tier-II Bonds, and Perpetual Tier-I Bonds [under Basel II])
CRISIL believes BoI will continue to benefit from strong government support, especially given the recent recapitalisation announcement. Asset quality and earnings are, however, expected to remain under pressure over the medium term.

Upward scenario:
* Substantial and sustained improvement in asset quality and earnings

Downward scenario:
* More-than-expected deterioration in asset quality or earnings

About the Bank

BoI is the fourth-largest PSB in India, with assets of Rs 596,099 crore as on June 30, 2018. The bank had 5127 branches and 7423 automated teller machines across India as on June 30, 2018. A significant number of its branches cater to rural and semi-urban areas. The bank has a strong presence in the corporate segment with the bulk of its business and earnings coming from the larger corporate clients. BoI has strong presence overseas with around 25% of its total business coming from outside India. Government stake in the bank was 83.1% as on June 30, 2018.

For fiscal 2018, the bank had a loss of Rs 6043.7 crore and total income (net of interest expense) of Rs 16240.1 crore, against a loss of Rs 1558 crore and total income (net of interest expense) of Rs 18,598 crore for fiscal 2017.

For the quarter ended June 30, 2018, net profit was Rs 95.1 crore and total income (net of interest expense) was Rs 4184.3 crore, against a profit of Rs 87.7 crore and total income (net of interest expense) of Rs 4144.0 crore for the corresponding period of the previous fiscal.

Key Financial Indicators
As on / for the six months ended June 30   2018 2017
Total Assets Rs crore 5,96,099 6,25686
Total income Rs crore 10842 11,106
Profit after tax Rs crore 95.1 87.7
Gross NPA % 16.7 13.1
Overall capital adequacy ratio % 11.4 12.4
Return on assets % 0.06 0.05

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.
Note on Tier-II Instruments (Under Basel III)
The distinguishing feature of Tier-II capital instruments under Basel II is the existence of the point of non-viability (PONV) trigger, the occurrence of which may result in loss of principal to the investors and hence, to default on the instrument by the issuer.  According to the Basel III guidelines, the PONV trigger will be determined by the Reserve Bank of India (RBI). CRISIL believes that the PONV trigger is a remote possibility in the Indian context, given the robust regulatory and supervisory framework and the systemic importance of the banking sector. The inherent risk associated with the PONV feature is adequately factored into the rating on the instrument.
Note on Hybrid Instruments (Under Basel II)
Given that hybrid capital instruments (Tier-I perpetual bonds and Upper Tier-II bonds; under Basel II) have characteristics that set them apart from Lower Tier-II bonds (under Basel II), the ratings on the two instruments may not necessarily be identical. The factors that could trigger a default event for hybrid instruments include: the bank breaching the regulatory minimum capital requirement, or the regulator's denial of permission to the bank to make payments of interest and principal if the bank reports losses. Hence, the transition from one rating category to another may be significantly sharper for these instruments than in the case of Lower Tier-II bonds; this is because debt servicing on hybrid instruments is far more sensitive to the bank's overall capital adequacy levels and profitability.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Cr) Rating Outstanding
with Outlook
INE084A09183 Upper Tier II - series IV 28-Aug-09 8.50% 28-Aug-24 500 CRISIL AA+/Stable
INE084A09209 Upper Tier II - series V 20-Jan-10 8.54% 20-Jan-25 1000 CRISIL AA+/Stable
INE084A09217 Upper Tier II - Series VI 6-Nov-10 8.48% 6-Nov-25 1000 CRISIL AA+/Stable
INE084A08037 Tier II - Series X 25-Sep-13 9.80% 25-Sep-23 1000 CRISIL AA+/Stable
INE084A08045 Tier II - Series XI 30-Sep-13 9.80% 30-Sep-23 500 CRISIL AA+/Stable
INE084A08060 Tier II - Series XII 31-Dec-15 8.52% 31-Dec-25 3000 CRISIL AA+/Stable
INE084A08094 Tier II - Series XIII 7-Jul-16 8.57% 7-Jul-26 1500 CRISIL AA+/Stable
INE084A09191 IPDI Series V 12-Sep-09 9.00% Perpetual 325 CRISIL AA+/Stable
INE084A09225 IPDI Series VI 9-Sep-10 9.05% Perpetual 300 CRISIL AA+/Stable
NA Certificate of Deposit NA NA 7-365 days 30000 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Certificate of Deposits  ST  30000.00  CRISIL A1+  25-01-18  CRISIL A1+  12-09-17  CRISIL A1+  05-07-16  CRISIL A1+  11-12-15  CRISIL A1+  CRISIL A1+ 
            27-01-17  CRISIL A1+  08-06-16  CRISIL A1+  24-07-15  CRISIL A1+   
                09-03-16  CRISIL A1+       
Lower Tier II Bonds  LT                      CRISIL AAA/Stable 
Lower Tier-II Bonds (under Basel II)  LT    --    --  27-01-17  Withdrawal  05-07-16  CRISIL AA+/Negative  11-12-15  CRISIL AAA/Negative  -- 
                08-06-16  CRISIL AA+/Negative  24-07-15  CRISIL AAA/Negative   
                09-03-16  CRISIL AA+/Negative       
Perpetual Tier I Bonds  LT                      CRISIL AAA/Stable 
Perpetual Tier-I Bonds (under Basel II)  LT  625.00
CRISIL AA+/Stable  25-01-18  CRISIL AA+/Stable  12-09-17  CRISIL AA+/Negative  05-07-16  CRISIL AA+/Negative  11-12-15  CRISIL AAA/Negative  -- 
            27-01-17  CRISIL AA+/Negative  08-06-16  CRISIL AA+/Negative  24-07-15  CRISIL AAA/Negative   
                09-03-16  CRISIL AA+/Negative       
Tier I Bonds (Under Basel III)  LT  0.00
Withdrawn  25-01-18  CRISIL A+/Negative  12-09-17  CRISIL A+/Negative  05-07-16  CRISIL A+/Negative    --  -- 
            27-01-17  CRISIL A+/Negative  08-06-16  CRISIL A+/Negative       
                09-03-16  CRISIL A+/Negative       
Tier II Bond  LT                      CRISIL AAA/Stable 
Tier II Bonds (Under Basel III)  LT  6000.00
CRISIL AA+/Stable  25-01-18  CRISIL AA+/Stable  12-09-17  CRISIL AA+/Negative  05-07-16  CRISIL AA+/Negative  11-12-15  CRISIL AAA/Negative  -- 
            27-01-17  CRISIL AA+/Negative  08-06-16  CRISIL AA+/Negative  24-07-15  CRISIL AAA/Negative   
                09-03-16  CRISIL AA+/Negative       
Upper Tier II Bonds  LT                      CRISIL AAA/Stable 
Upper Tier-II Bonds (under Basel II)  LT  2500.00
CRISIL AA+/Stable  25-01-18  CRISIL AA+/Stable  12-09-17  CRISIL AA+/Negative  05-07-16  CRISIL AA+/Negative  11-12-15  CRISIL AAA/Negative  -- 
            27-01-17  CRISIL AA+/Negative  08-06-16  CRISIL AA+/Negative  24-07-15  CRISIL AAA/Negative   
                09-03-16  CRISIL AA+/Negative       
All amounts are in Rs.Cr.
Links to related criteria
Rating Criteria for Banks and Financial Institutions
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support
Rating criteria for Basel III - compliant non-equity capital instruments

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