| Bank of India | ||||||||
| Ratings Reaffirmed | ||||||||
| Rating Action | ||||||||
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| 1 crore = 10 million | ||||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on Bank of India (BoI) the tier II bonds (under Basel III), perpetual tier I bonds (under Basel II), upper tier II bonds (hybrid instruments; under Basel II), and certificates of deposit programme. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of BoI and all its wholly-owned subsidiaries. CRISIL has also factored in the strong support that the bank is expected to receive from GoI, both on an ongoing basis and in the event of distress. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Expectation of strong support from the government: The rating continues to factor in 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 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, the strong public perception of sovereign backing for PSBs, and severe implications of any PSB's failure, in terms of political fallout, systemic stability, and investor confidence in public sector institutions. The majority ownership creates a moral obligation on GoI to support PSBs, including BoI. As part of the Indradhanush framework, the government had pledged to infuse at least Rs 70,000 crore in PSBs over fiscals 2015-19, of which Rs 25,000 crore each was infused in fiscals 2016 and 2017. Furthermore, in October 2017, the government outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019; BoI received capital infusion of Rs 9,232 crore and Rs 14,724 crore in fiscal 2018 and fiscal 2019, respectively. * Established market position: BoI has an established market position with total assets of Rs 681,342 crore as on June 30, 2020 (Rs 656,995 crore as on March 31, 2020; Rs 625,223 crore as on March 31, 2019). National presence gives the bank the benefit of a wide distribution network and access to retail depositors. With the bank exiting the prompt corrective action framework of RBI in January 2019, gross advances witnessed healthy growth of 9% in fiscal 2020, as against growth of 2% in fiscal 2019 and de-growth of 5% in fiscal 2018. The bank has pan-India presence with a total branch network of 5,109 (including 23 overseas branches) as on June 30, 2020, out of which 64% of the branches are in rural and semi-urban areas. This helps the bank to garner low-cost deposits. * Comfortable resource profile: The resource profile is supported by a large deposit base and 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 40.6% of total domestic deposits as on June 30, 2020 (41.5% as on March 31, 2020). The bank's sizeable overseas presence (13.1% of total deposits as on June 30, 2020) also supports the resource profile. Weaknesses: * Weak asset quality: Asset quality remains under stress, with gross non-performing assets (NPAs) at 13.9% as on June 30, 2020. Large corporate and overseas NPAs accounted for around 66% of overall gross NPAs as on June 30, 2020. Retail; micro, small and medium enterprise (MSME); agriculture; corporate and overseas segments have gross NPAs of 2.8%, 15.5%, 17.1%, 15.0% and 17.8%, respectively, as on June 30, 2020. Nevertheless, BoI's gross NPAs have declined over the past few fiscals to 14.8% as on March 31, 2020 (15.8% as on March 31, 2019, and 16.6% as on March 31, 2018). Also, slippages declined to 4.8% of opening net advances in fiscal 2020, from 5.2% and 7.0% in fiscals 2019 and 2018, respectively. With standstill on asset classification, slippages have further decreased to 2.4% (annualised) in the first quarter of fiscal 2021. The bank's ability to arrest slippages under the challenging macro environment will remain a key monitorable. * Modest earnings: Earnings have remained weak for the past few fiscals due to elevated credit cost. Provisioning cost remained high at 2.5% for fiscal 2020, albeit lower than 2.7% for fiscal 2019. As a result, return on assets (RoA) was negative 0.5% in fiscal 2020, as against negative 0.9% in fiscal 2019. Nevertheless, on account of improvement in the net interest margin (2.4% for fiscal 2020 as against 2.2% for fiscal 2019) and non-interest income (1.0% for fiscal 2020 as against 0.8% in fiscal 2019), pre-provision profit, as a proportion of average assets, improved to 1.8% in fiscal 2020, from 1.3% in fiscal 2019. With lower provisioning cost in the first quarter of fiscal 2021 and treasury gains of Rs 914 crore, BoI posted profit after tax of Rs 843 crore for the first quarter of fiscal 2020 (Rs 243 crore for the corresponding period in the previous fiscal). RoA was 0.5% for the quarter ended June 30, 2020, against 0.2% for the corresponding period of the previous fiscal. Provisioning coverage ratio1 improved to 77% as on June 30, 2020. The bank's ability to improve operating profit and contain credit cost will remain a key monitorable over the medium term. |
| Liquidity Strong |
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Liquidity is supported by a strong retail deposit base. Liquidity coverage ratio was 161% as on June 30, 2020, as against statutory minimum of 80%. Also, excess over the statutory liquidity ratio (SLR) stood at Rs 24,589 crore (4.66% of net demand and time liabilities) as on June 30, 2020. Liquidity is also supported by access to systemic sources of funds, such as the liquidity adjustment facility from RBI and access to the call money market. |
| Outlook: Stable |
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BoI's credit risk profile derives significant strength from the strong support expected from GoI both on an ongoing basis and in the event of distress. However, the bank's asset quality and profitability will remain under pressure over the medium term. |
| Rating Sensitivity factors |
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Upward factors * Improvement in asset quality and profitability on a sustained basis with the bank reporting RoA of over 0.4% on a steady state basis. * The capitalisation metrics improving considerably with significant cushion over the regulatory requirements Downward factors * Deterioration in asset quality with GNPAs rising from current levels, and/or * Decline in capital adequacy ratios below minimum regulatory requirements (including capital conservation buffer, which is Tier I of 9.5% and overall CAR of 11.5% as on March 31, 2020) for an extended period |
| About the Bank |
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BoI is the sixth-largest PSB in India, with assets of Rs 681,342 crore as on June 30, 2020. The bank had 5,109 branches and 5,750 automated teller machines across India as on June 30, 2020. A significant number of its branches cater to rural and semi-urban areas. It has strong presence in the corporate segment, with the bulk of its business and earnings coming from large corporate clients. It also has a strong presence overseas with around 13.2% of its total business coming from outside India. GoI's stake in the bank was 89.1% as on June 30, 2020. |
| Key Financial Indicators | ||||||||||||||||||||||||||||
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Status of non cooperation with previous CRA: Not applicable |
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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. |
| Note on tier II instruments (under Basel III) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The distinguishing feature of tier II capital instruments under Basel III 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 RBI. CRISIL believes the PONV trigger is a remote possibility in the Indian context, given the robust regulatory and supervisory framework and 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Rating Withdrawn | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of entities consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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