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India Ratings and Research (Ind-Ra) has upgraded Bank of India’s (BoI) long-term issuer rating from “AA” from “AA+”, reflecting the state-owned lender’s capital position and operating buffer.
The outlook is stable, said Ind-Ra in a statement. BoI, since FY21, has reported consistent profitability which, along with timely capital raise, has largely led to an improvement in its Common Equity Tier 1 to 12.97 per cent at end-2QFY23. This has resulted in a total capital adequacy ratio (CAR) of 15.51 per cent and both CET1 and CAR compare favorably with peer banks.
The rating action considered the BoI’s ability to absorb the impact of any expected or unexpected credit costs. BoI’s provision cover is improving without any significant deterioration in its credit profile and market position.
The bank’s high provision coverage moderates the requirements of additional provisioning requirements. The provision coverage ratio stood at 87.81 per cent in Q2 of FY23.
The enhanced profile could enable the bank to witness material profitability in the current financial year (FY23). Its annualised return on assets (RoA) stood at 0.4 per cent for 1HFY23.
The profile could also enable the bank to boost its share in advances and deposits over the medium term. The upgrade also reflects its systemic importance driven by net advances market share of 3.7 per cent and deposit market share of 3.9 per cent in the first half of FY23.
The government held 81.4 per cent stake in BoI in September 2022 and its support has been demonstrated through regular infusions of equity over the last few years. This helped the bank to step up provisions and strengthen its balance sheet.
India Rating flagged risk that its deposit profile could come under pressure. BoI’s low-cost current account and savings account (CASA) deposits remained steady at 37.4 per cent at end-1HFY23, marginally below the peer median levels. During 1HFY23, BoI’s CASA grew at about 4.1 per cent year on year (YoY) basis. The overall deposits, including fixed deposits, grew about 5.6 per cent YoY, while net advances grew 21.5 per cent (YoY).
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