Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong expectation of support from majority owner, the Government of India (GOI)

Wholly owned by the GOI, EXIM Bank is a specialised institution ensuring India’s increasing integration with the global economy by promoting, financing, and facilitating international trade and investment. The GOI continues to route its lines of credit to sovereign nations through EXIM Bank, reflecting the latter’s importance in furthering global strategic interests. As an institution involved in expanding India’s share in international trade, the bank receives continuous funding support from the GOI. In fiscal 2012, the bank’s authorised capital was enhanced to Rs 10,000 crore from Rs 2,000 crore by amending the Export Import Bank of India Act 1981; and further increased in fiscal 2019 to Rs 20,000 crore. GOI infused equity capital of Rs 1,300 crore each in fiscals 2015 and 2016, Rs 500 crore each in fiscals 2017 and 2018, Rs 5,000 crore in 2019, Rs 1,500 crore in fiscal 2020, Rs 1300 crore in fiscal 2021 and Rs 750 crore in fiscal 2022, thereby further augmenting the Bank’s capital levels. EXIM Bank’s strategic role in facilitating international trade will continue to derive strong support from the GOI over the medium term.

EXIM Bank’s net loan book stood at Rs 136,022 crore as at September 30, 2023 (Rs 134,523 crore as at March 31, 2023). Of the total loans ended September 30, 2023, 77% was foreign currency loans while the remaining 23% was rupee denominated (74% and 26%, respectively, as of March 31, 2023). Also, the share of policy business (as a proportion of total business) has remained stable at 53% as at September 30, 2023 as compared to 52% as on March 31, 2023.

Adequate capitalisation

The capitalisation profile has been supported by regular capital infusion from the GOI post incurring losses in fiscal 2018. From fiscal 2019, GOI has overall infused Rs 8,550 crore till nine months ended December 31, 2023. Further, coupled with positive internal accrual, networth improved to Rs 22,299 crore as of December 31, 2023 (Rs 20,628 crore as of March 31, 2023). As a result, the bank’s total capital adequacy stood at 26.4%, as of December 31, 2023 (25.4 as at March 31, 2023). Capitalisation is expected to remain strong over the medium term, backed by periodic capital infusions from the GOI.

The recent circular by the Reserve Bank of India (RBI) pertaining to the investments made by regulated entities including All-India Financial Institutions in Alternative Investment Funds (AIFs) is not expected to have any material impact.

Strong resource-raising ability

The bank has successfully raised wholesale funds at competitive interest rates in the domestic and global capital markets. In the Indian debt market, EXIM Bank’s paper is accepted as a benchmark in its category and has wide acceptance among institutional investors.

Weakness:

Modest yet improving asset quality metrics and earnings profile

EXIM Bank’s asset quality deteriorated in fiscal 2018 post the compliance with RBI’s circular on resolution of stressed assets and its high exposure to NCLT cases. However, since then, the Bank changed its strategy for commercial business with focus on high rated clients with satisfactory track record to ensure strong asset quality. Consequently, the asset quality has been improving from peak gross NPA of 11.3% as on March 31, 2019, to 8.7% in as on March 31, 2020. Even during the pandemic gross NPA continued to improve to 6.7% as on March 31, 2021, and 3.6% as on March 31, 2022. However, in fiscal 2023, due to slippages from some foreign sovereign exposure, the reported gross non-performing assets (GNPA) for the bank increased to 4.1% as on March 31, 2023. Nevertheless, in first nine months ended December 31, 2023, the gross NPA improved to 3.6%,

In past couple of years, the reduction in GNPA was on account of recoveries, including under NCLT and technical write-offs implemented by the bank. Further, provision coverage ratio remained comfortable at 95% as at December 31, 2023 (95% end of fiscal 2023), owing to which the net NPA ratio stood at 0.6% as at December 31, 2023 as against 0.7% as at March 31, 2023.

EXIM Bank’s profitability remained modest as compared to commercial banks given its mandate to promote India’s international trade resulting in lower interest spreads, however, the profitability has improved in first nine months of fiscal 2024. The bank reported a profit of Rs 1,671 crore on a net interest income of Rs 2481 crore as compared to profit of Rs 1556 crore on a net interest income of Rs 3,456 crore in fiscal 2023. The margins (on total income net of interest expenses) declined to 2.2% as at December 31, 2023, in comparison to 2.6% as at March 31, 2023, driven by increase in borrowing cost. However, the provisioning costs improved to 0.2% in first nine months of fiscal 2024 from 1.0% in fiscal 2023. Consequently, the overall profitability improved with return on average assets of 1.4% in first nine months of fiscal 2024, as compared to 1.0% in fiscal 2023.