Detailed Rationale

CRISIL Ratings has withdrawn its long-term rating on Rs 1000 Crore lower tier II bonds (under Basel II) of Bank of Maharashtra (BoM) and reaffirmed its rating on short term debt instruments of the bank at ‘CRISIL A1+’. The withdrawal of long-term rating is in line with CRISIL Ratings policy on withdrawal of ratings. CRISIL Ratings has received independent confirmation that these instruments are fully redeemed.

 

The rating continues to factor in the expectation of strong support that the bank is expected to receive from the majority owner - Government of India (GoI), comfortable resource profile and sustained improvement in asset quality and profitability. These strengths are partially offset by high regional concentration in operations.

 

The bank’s gross advances stood at Rs 1,83,122 crore as on September 30, 2023, as compared to Rs 1,75,120 crore on March 31, 2023, marking a half yearly growth of 9%.(annualised) For fiscal 2023, gross advances grew by 29% from Rs 1,35,250 crore as on March 31, 2022.

 

During this scheme of growth, the bank’s asset quality has continued to improve at a steady pace. Gross non-performing assets (GNPA) reduced to 2.2% as on September 30, 2023 from 2.5% as on March 31, 2023 and 3.9% as on March 31, 2022, supported by reduced slippages and stable recoveries. For the first half of fiscal 2024, the bank’s slippages reduced to 0.3% of gross advances from 1.4% for full fiscal 2023 and 2.1% in fiscal 2022. As on September 30, 2023, the total restructured assets stood at Rs 3313 crore (1.8% of gross advances).

 

In terms of profitability,   the bank had an RoA (annualised) of 1.3% for H1FY24, higher than 1.1% in fiscal 2023 and 0.6% in fiscal 2022. This improvement in earnings profile was driven by expansion in net interest margins (NIM) to 3.5% (annualized) in H1FY24 from 3.1% in FY23 on account of higher average yields. The bank’s credit costs stood at 1.3% (annualised) for H1FY24 as compared 1.1% in FY23 and operating expense as a percentage of managed assets remained range bound between 1.6% to 1.7%.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of BoM. CRISIL Ratings has also factored in the strong support expected from the majority owner, GoI, both on an ongoing basis and in the event of distress.

Key Rating Drivers & Detailed Description

Strengths:

• Expectation of strong support from the government (GoI)

In its ratings on public sector banks (PSBs), CRISIL Ratings continues to factor in strong support from GoI, which is both the majority shareholder 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 severe implications of failure of any PSB 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 BoM.

 

Between fiscals 2018 and 2020, the government has infused around Rs 8,707 crore in the bank. Post that, BoM has additionally raised capital of Rs 404 crore through qualified institutional placement (QIP) in July 2021, Rs 1000 crore Tier II Bonds (under Basel III) in October 2021 and Rs 290 crore Tier I Bond (under Basel III) in March 2022. More recently, the bank raised AT-1 of Rs 1590 crore fiscal 2023 and Tier II bonds of Rs 348 crore in fiscal 2023 followed by Rs 515 crore in September 2023 and Rs 1000 crore by way of QIP in June 2023. Supported by these rounds of capital, the bank’s Tier 1 and total capital adequacy ratios (CARs) stood at 13.7% and 17.6% respectively as on September 30, 2023 as compared to 14.3% and 18.1% as on March 31, 2023 vis-a-vis 12.4% and 16.5%, respectively, a year earlier.

 

• Comfortable resource profile

The bank had a large proportion of low-cost current account and savings account (CASA) deposits, at 50.7% of its total deposit base as on September 30, 2023 (53.4% as on March 31, 2023). Furthermore, total retail deposits constituted 68% of total term deposits as on March 31, 2023 and 73%, a year earlier. Consequently, cost of deposits increased to 4.2% in first half of fiscal 2024 as compared to 3.7% in fiscal 2023 due to reduction in share of retail deposits and macro interest rates scenario. Over the medium term, the bank’s resource profile is expected to remain stable, supported by a healthy share of low cost CASA.

 

• Sustained improvement in reported asset quality metrics and earnings profile

Asset quality metrics have continued to improve with gross NPAs declining to 2.2% as on September 30, 2023 vis-à-vis 2.5% as on March 31, 2023 (3.9% as on March 31, 2022). On an absolute basis, gross NPAs stood at Rs 4,017 crore as on September 30, 2023 which was at Rs 4,334 crore as on March 31, 2023 (Rs 5,327 crore as on March 31, 2022). The improvement has been a factor of controlled slippages and stable recoveries. For H1 2024, the bank’s slippage ratio was 0.3% of its gross advances, declined from  2% in fiscal 2022

 

In terms of segmental performance for the overall portfolio, GNPAs for large corporates stood at 0.3% as on September 30, 2023 in comparison to 0.6% as on March 31, 2023, for agriculture sector the GNPA marginally declined to 9.6% as on September 30, 2023 from 10.0% as on March 31, 2023. Likewise, the GNPA for retail and Micro small and Medium enterprises (MSME) reduced to 0.5% and 3.2% respectively, as on September 30, 2023 from 0.7% and 3.8% respectively, as on March 31, 2023.

 

Corresponding to credit costs remaining broadly stable, the overall earnings profile of the bank has also improved, evidenced by a net profit of Rs 1802 crore in H1FY24 as against Rs 2,602 crore in FY23 (Rs 1,152 in fiscal 2022). This was supported by higher net interest income largely on account of improved yields of 11.0% (annualised) in first half of fiscal 2024 against 10.3% in fiscal 2023. The rise in yields was a factor of favorable change in asset mix and growth in overall assets under management (AUM). Credit costs increased marginally to 1.3% (annualised) during half year ended September 30, 2023 from 1.1% for fiscal 2023 Overall return on assets further improved to 1.3% annualised for H1FY24 which was earlier at 1.1% for FY23 and even lower at 0.6% for fiscal 2022.

 

Over the medium term, bank’s ability to sustain the improved asset quality and earnings profile will remain a key monitorable.

 

Weakness:

• High regional concentration in operations

The bank’s operations are concentrated in Maharashtra, which accounted for 75% of the deposits and 48% of the advances as on September 30, 2023. While the bank has been expanding its presence outside the state, the risk of regional concentration still remains and is likely to reduce only in the long term.

Liquidity: Strong

Liquidity is supported by a strong retail deposit base that forms a significant part of the total deposits. The liquidity coverage ratio was 143% as on September 30, 2023, much higher than the regulatory requirement. Liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from RBI, access to the call money market, and refinance limits from sources such as National Housing Bank and National Bank for Agriculture and Rural Development.

 

ESG Profile:

CRISIL ratings believes that BoM’s Environment, Social and Governance (ESG) profile supports its already strong credit risk profile.

 

The ESG profile for financial sector entities typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment.

 

BoM has an ongoing focus on strengthening various aspects of its ESG profile.

 

BoM’s key ESG highlights:

The Bank has entered into an Memorandum of Understanding with a renowned agency to carry out the E-Waste Management in an eco-friendly manner. The Agency shall also recycle the EWaste wherever possible. Bank determine the severity and likelihood of incidents that could result for identified hazard, and use this information to prioritize corrective actions.

ESG disclosures of the bank are evolving, and it is in the process of further strengthening the disclosures going forward.

Of the total workforce, around 27.1% comprised of women as on March 31, 2023. Further, the bank has taken initiatives to promote gender equity within the organization.

The bank governance structure is characterized by 38% of independent director, The bank also has a dedicated investor grievance redressal mechanism. The financial disclosures put out by the bank are extensive.

Rating Sensitivity factors

Downward factors:

• Material change in shareholding and/or expectation of support from government of India
• A decline in CAR below minimum regulatory requirement of 12% (including capital conservation buffer) over an extended period

About the Company

BoM is a medium-sized PSB, with assets of Rs 2,73,184 crore, and a network of 2341 branches and 2391 automated teller machines (ATMs) as on September 30, 2023; 54.3% of the branches are in rural and semi-urban areas. With deposits of Rs 2,39,392 crore and advances of Rs 1,83,122 crore, the bank had a market share of around 1% each in deposits and advances, in the banking system, as on September 30, 2023.

 

For the first half of fiscal 2024, profit after tax (PAT) was Rs 1,802 crore on a total income (net of interest expense) of Rs 6,068 crore as against Rs 987 crore of PAT and a total income of Rs 4,392 crore for the corresponding half of the preceding fiscal. For fiscal 2023, the bank reported a PAT of Rs 2,602 crore on a total income (net of interest expense) of Rs 10,021 crore vis-à-vis  a PAT of Rs 1,152 crore on a total income (net of interest expense) of Rs. 8,697 crore, for fiscal 2022. 

Key Financial Indicators

As on / for the period ended	Unit	September 23	March 2023	March 2022
Total assets	Rs crore	273184	267651	230611
Total income (net of interest expenses)	Rs crore	6068	10021	8697
Profit after tax	Rs crore	1802	2602	1152
Gross NPAs	%	2.2	2.5	3.9
Overall capital adequacy ratio	%	17.6	18.1	16.9
Return on assets	%	1.3	1.1	0.6

 

Any other information: Not applicable