| Bank of Maharashtra | ||||||||||||
| 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CRISIL has withdrawn its 'CRISIL A+/Stable' rating on the Rs 200 crore Lower Tier-II Bonds (Under Basel II) and its 'CRISIL BBB+/Negative' rating on the Rs 1,000 crore Tier-I Bonds (Under Basel III) of Bank of Maharashtra (BoM) as there was no outstanding against these instruments. The withdrawal is in line with CRISIL's policy. The ratings on the Lower Tier-II Bonds (under Basel II), Tier-I Perpetual Bonds and Upper Tier-II Bonds (hybrid instruments; under Basel II), and certificates of deposit programme have been reaffirmed at 'CRISIL A+/Stable', 'CRISIL A/Stable', and 'CRISIL A1+', respectively. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has considered the standalone business and financial risk profiles of BoM and has also factored in expected strong support from the government, the majority shareholder. |
| Key Rating Drivers & Detailed Description |
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Strengths * 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 it 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. The majority ownership creates a moral obligation on GoI to support PSBs, including BoM. As part of the Indradhanush framework, the government has pledged to infuse at least Rs 70,000 crore in PSBs during fiscals 2015-19, of which Rs 25,000 crore each was infused in fiscals 2016 and 2017. Furthermore, in October 2017, the government had outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019, out of which PSBs would receive Rs 88,139 crore in fiscal 2018. BoM was allocated Rs 3,173 crore out of this during fiscal 2018. * Comfortable resource profile The bank's comfortable resource profile is reflected in the large proportion of low-cost current account and savings account (CASA) deposits, at 47.7% of total deposits as on March 31, 2018 (46.3% as on June 30, 2018). Furthermore, total retail deposits constituted 96.7% of total deposits as on March 31, 2018. Weaknesses * Weak asset quality Asset quality has deteriorated sharply over the past few quarters, as reflected in the rise in the gross non-performing assets (NPAs) ratio to 21.18% as on June 30, 2018, from 19.48% as on March 31, 2018 (16.93% as on March 31, 2017), primarily due to slippages in the large and medium corporate loan portfolios. Slippages to NPAs as a percentage of opening net advances was high at 10.15% (annualised) for the quarter ended June 30, 2018, as against 6.0% in fiscal 2018 and was also from micro and small enterprise, and agriculture portfolios besides that from large corporates. Absolute gross NPAs was Rs 17800 crore as on June 30, 2018( Rs 18433 crore as on March 31, 2018). Net NPA ratio was 12.20% as on June 30, 2018 (11.24% as on March 31, 2018). The ability of the bank to arrest slippages and also affect recovery mainly in the corporate and MSME loan book will remain a key rating monitorable over the medium term. * Weak earnings The sharp deterioration in asset quality has significantly affected profitability of the bank as reflected in return on assets at a negative 2.8% (annualised) for the quarter ended June 30, 2018, as against a negative 0.7% for fiscal 2018 (negative 0.9% for fiscal 2017). Pre-provisioning profits as a proportion of average assets also decreased to 1.2% (annualised) for the quarter ended June 30, 2018, from 1.4% for fiscal 2018. Additionally, provisioning cost increased to 4.2% for the quarter ended June 30, 2018 (annualised) against 3.5% for fiscal 2018. The provision coverage ratio (excluding technical write-off), however, increased to 48.5% as on June 30, 2018, from 47.8% as on March 31, 2018, and 34.7% as on March 31, 2017. Ability to improve operating profits and also contain credit costs will, therefore, remain a key monitorable. * High regional concentration in operations Operations are concentrated in Maharashtra, which accounted for 71% of the business and 60% of the branches as on March 31, 2018. While branches have been opened outside the state, concentration risk is likely to reduce only in the long term. |
| Outlook: Stable |
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CRISIL believes BoM will continue to benefit from strong government support, given the stated recapitalisation plan. However, asset quality and earnings are expected to remain under pressure over the near to medium term. |
| About the Bank |
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BoM is a medium-sized PSB, with assets of Rs 1,56,329 crore, and a network of 1846 branches and 1864 automated teller machines (ATMs) as on March 31, 2018; 57% of its branches are in rural and semi-urban areas. With deposits of Rs 1,38,981 crore and advances of Rs 94,645 crore, the bank had market shares of 1.2% and 1.1% of deposits and advances, respectively, in the banking system, as on March 31, 2018. Tier I, and overall capital adequacy ratios stood at 9.00% and 11.00%, respectively, as on March 31, 2018 (8.07% and 10.14%, respectively, as on June 30, 2018). |
| Key Financial Indicators | ||||||||||||||||||||||||||||
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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. 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 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 - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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