Detailed Rationale

Crisil Ratings has reaffirmed its long-term ratings on the tier-II bonds (under Basel III) and fixed deposit programme of Indian Overseas Bank (IOB) at ‘Crisil AA+/Crisil AA/Stable’. Rating on fixed deposits have been continues on 'Notice of Withdrawal'.
 

The rating continues to factor in expectation of continued strong support from its majority owner, the Government of India (GoI), both on an ongoing basis and in the event of distress. The rating also takes into consideration sustained improvement in earnings and strengthening of capital position, which is likely to be maintained over the medium term. The bank has been profitable since the past five fiscals (fiscal 2021) owing to lower credit cost backed by less incremental stress as well as improving net interest margins (NIMs). Supported by regular capital infusion, the bank was able to build sufficient buffer for its non-performing assets (NPAs) with a provision coverage ratio (PCR)¹ of 83% as on March 31, 2025.
 

Gross advances of the bank stood at Rs 250019 crore as on March 31,2025 registered a growth of 14% during fiscal 2025. (As on March 31,2024 gross advances stood at Rs 219018). The overall growth was primarily driven by growth in Retail, Agricultural and MSME(RAM) portfolio. The contribution of RAM to total advances stood at around 72.6% as of March 2025 which increased from 66.5% as of March 2024.
 

Asset quality, while moderate, has seen sequential improvement with gross NPA reduced to 2.14% as on March 31, 2025, compared with 3.1% a year earlier. This improvement was mainly driven by higher write-offs as well as controlled slippage.
 

Besides, the capital position has improved, supported by timely capital infusion (recently in March 2025 the bank raised Rs 1436 crores through Qualified institutional placement) and internal accruals, leading to tier 1 and overall capital adequacy ratio (CAR) improving to 17.13% and 19.74% respectively, as on March 31, 2025, from 14.5%, and 17.3% a year earlier.
 

¹PCR including technical write-off was 97% as on March 31, 2025

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of IOB and has factored in the strong support that the bank is expected to receive from its majority owner, GoI, both on an ongoing basis and in the event of distress.

Key Rating Drivers & Detailed Description

Strengths:

• Strong support from the majority owner, GoI: The ratings continue to factor in the expected 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 its criticality to the economy, strong public perception of sovereign backing for PSBs and severe implications of any PSB failure, in terms of political fallout, systemic stability and investor confidence. The majority ownership creates a moral obligation on GoI to support PSBs, including IOB. As part of the Indradhanush framework, the government had pledged to infuse at least Rs 70,000 crore in PSBs over fiscals 2015-2019, of which Rs 25,000 crore per annum was infused in fiscals 2016 and 2017. In October 2017, the government outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018-2019. IOB received Rs 5,794 crore in fiscal 2018 and Rs 5,963 crore in fiscal 2019 under this package. Also, GoI allocated Rs 70,000 crore in fiscal 2020, of which IOB received Rs 8,217 crore. During fiscal 2021, GoI infused Rs 4,100 crore. Thus, over fiscals 2018-2021, GoI infused Rs 22,974 crore into IOB. This has helped the bank to improve its capital ratios and meet regulatory requirements. As on March 31, 2025, Tier 1 and overall CAR stood at 17.13% and 19.74% respectively. An adequate capital position supported by internal accrual will limit the bank’s dependence on further capital support from GoI.

 

• Sustained improvement in earnings profile: The earning profile of the bank has shown an improving trend on a sustained basis over the past five fiscals. The bank reported a net profit of Rs 3335 crore during fiscal 2025 (RoA of 0.89%) as against Rs 2,656 crore (RoA of 0.80%) during fiscal 2024 and Rs 2099 crore (RoA of 0.7%) during fiscal 2023. Improvement in the earnings profile is supported by lower credit costs of 1.1% for fiscal 2025 (1.0% for fiscal 2024 and 1.2% for fiscal 2023) and lower cost of funds. Ability to sustain improvement in profitability will remain a key monitorable, with expected impact on NIMs due to recent rate cuts and a trend in slippages determining the trajectory of credit cost.

 

Weakness:

• Moderate asset quality, albeit improving: Asset quality remains moderate, albeit improving, with NPA ratios comparable with the industry average. Gross NPAs improved to 2.14% as on March 31, 2025, from 3.1% as on March 31, 2024 (7.4% as on March 31, 2023, 9.8% as on March 31, 2022, 11.7% as on March 31, 2021; 14.8% as on March 31, 2020), aided by write-offs and controlled slippages. The bank has written off a cumulative Rs 46,147 crore over fiscals 2019-2025, of which Rs 3043 crore was written off during fiscal 2025 (Rs 7,214 crore in fiscal 2024 Rs 3,413 crore in fiscal 2023, Rs 3,769 crore in fiscal 2022, Rs 4,618 crore in fiscal 2021, Rs 16,407 crore in fiscal 2020 and Rs 7,683 crore in fiscal 2019). Aside from write offs, structural improvement in asset quality is also seen through lower slippage (as a percentage of net opening advances) which were down to 1.7% in fiscal 2025 from 2.8% in fiscal 2023 and 4.0% in fiscal 2022; after remaining elevated in prior years (5.4% in fiscal 2020, 6.7% in fiscal 2019 and 12.0% in fiscal 2018). There was a substantial increase in slippage in fiscal 2025, rising to Rs 3,568 crore from Rs 1,516 crore in the previous fiscal year, primarily due to a default by a single large account totaling Rs 2332 crore. Nevertheless, the bank has made 100% provision against this account. The ability of the bank to maintain its asset quality with controlled slippages will remain a key monitorable factor.

Liquidity: Strong

Liquidity is supported by a sizeable retail deposit base, forming a large chunk of total deposits. Liquidity coverage ratio was 126.27% as on March 31, 2025, which is higher than the regulatory requirement. Also, the bank benefits from access to systemic sources of funds such as the liquidity adjustment facility from the RBI, 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 the environment, social and governance (ESG) profile of IOB supports its already strong credit risk profile.

The ESG profile for the financial sector entities factors in governance as a key differentiator. The sector has a 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 direct adverse environmental impact, lending decisions may have a bearing on the environment.

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

Key ESG highlights:

• The bank’s Scope 1 and 2 emissions and energy consumption intensity stands at ~3.1 tCO2E and ~5 MWh per employee, respectively. The share of renewables in the energy mix is low at less than 1%, which is an area of improvement.
• IOB’s gender diversity, at ~36%, is better than that of its peers, as is its the attrition rate, which stood at ~1% in fiscal 2025.
• The bank’s customer complaint intensity at ~0.86 per Rs crore of loans and advances in fiscal 2025, declining from ~1.2 in fiscal 2024.
• The bank’s governance structure is characterized by 50% of its board comprising of independent directors, 1-women directors, dedicated investor grievance redressal system, and extensive financial disclosures.
   

There is growing importance of ESG among investors and lenders. The commitment of IOB to ESG will play a key role in enhancing stakeholder confidence, given its access to domestic and foreign capital markets.

Outlook: Stable

Crisil Ratings believes IOB will continue to benefit from government support on an ongoing basis as well as in the event of distress. Asset quality and profitability are expected to maintain positive trajectory, however, will remain monitorable

Rating sensitivity factors

Upward factors:

• Significant improvement in overall market position over the medium term.
• Sustained improvement in profitability, with ROA over 1.0% on a steady state basis.
   

Downward factors:

• Material changes in shareholding or expectation of support from the government
• Decline in CAR below minimum regulatory requirements (including CCB, which is Tier I of 9.5% and overall, CAR of 11.5%)

About the Company

Set up in 1937 by Mr M Ct M Chidambaram Chettyar, IOB was nationalised in 1969. Headquartered in Chennai, the bank had 3,335 domestic branches, 4 overseas branches and 3,497 automated teller machines as on March 31, 2025. As on March 31, 2025, total advances and deposits were Rs 250,019 crore and Rs 311,939 crore, respectively. The loan portfolio comprises corporate loans (20.8%), MSME loans (17.7%), agriculture loans (29.8%), retail loans (25.1%) and overseas loans (6.6%). Current account and savings account (CASA) deposits to total deposits ratio was 43.65% as on March 31, 2025 (43.9% as on March 31, 2024, 43.7% as on March 31, 2023, and 43.4% as on March 31, 2022).
 

For fiscal 2025, the bank reported PAT of Rs 3,335 crore on total income (net of interest expense) of Rs 16,435 crore, compared with Rs 2,656 crore and Rs 15,486 crore, respectively, in fiscal 2024.

Key Financial Indicators

As on / for the year ended March 31	Unit	2025	2024	2023
Total assets	Rs crore	395,015	352,034	313,746
Total income (net of interest expense)	Rs crore	16435	15,486	12,364
PAT	Rs crore	3335	2,656	2,099
Gross NPA	%	2.1	3.1	7.4

 

Any other information: Not applicable