Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the outstanding Tier II Bonds (under BASEL III) and the certificate of deposits of Bank of India (BOI). CRISIL Ratings has also reaffirmed its ‘CRISIL AA/Stable’ rating on the outstanding Tier I Bonds (under BASEL III).
Also, CRISIL Ratings has withdrawn its long term rating on tier-II bonds of Rs 1,500 crore as the outstanding against the same is nil and on receipt of confirmation from the debenture trustee (see Annexure - Details of Rating Withdrawn for details) in line with its withdrawal policy.
The ratings continue to reflect the expectation of strong support from the majority stakeholder, Government of India (GoI), and the established market position and comfortable resource profile of the bank. These strengths are partially offset by weak, albeit improving asset quality and average earnings profile. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of BOI and all its wholly-owned subsidiaries. CRISIL Ratings has also factored in the strong support that the bank is expected to receive from GoI, both on an ongoing basis and in the event of distress.
Please refer Annexure - List of a Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Expectation of strong support from the government The ratings factor in expectation of strong government support, both on an ongoing basis, and in the event of distress. The bank has high strategic importance to GoI which is its majority shareholder, and also the guardian of India's financial system. While the shareholding of GoI declined to ~73.4% from ~81% post the Rs 4,500 crore qualified institutional placement in Dec-23, it remains the majority shareholder. Stability of the banking sector is of prime importance to the government, given the criticality of the sector to the economy, the strong public perception of sovereign backing for PSBs, and severe implications of any PSB’s failure, in terms of a political fallout, systemic stability, and investor confidence. The majority ownership creates a moral obligation on the government to support PSBs, including BOI.
As part of the Indradhanush framework, the government had pledged to infuse at least Rs 70,000 crore in PSBs over fiscals 2015-19, of which Rs 25,000 crore each was infused in fiscals 2016 and 2017. Furthermore, in October 2017, the government outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019.
BOI received capital infusion of Rs 9,232 crore and Rs 14,724 crore in fiscals 2018 and 2019, respectively. The bank also received capital infusion of Rs 3,000 crore from the government in fiscal 2021.
Supported by the regular capital infusion made by the government and higher cash accrual, BOI’s capital adequacy ratios are adequate with Tier 1 and overall capital to risk-weighted adequacy ratio of 14.3% and 16.2% respectively, as on June 30, 2024 (14.9% and 17.0%, respectively on March 31,2024 and 13.8% and 15.6% respectively, as on June 30, 2023).
Established market position BOI has an established market position, with gross advances of Rs 6.0 lakh crore as on June 30, 2024 which marks a growth of 15.8% on a year on year (YoY) basis (13.5% for fiscal 2024). Total business stood at Rs 13.6 lakhs crore as on June 30, 2024, registering growth of 12.3% on a YoY basis (growth in total business for fiscal 2024 was 11.7%). The bank has presence across the country which gives it access to a wide distribution network and retail depositors.
The bank had 5,177 branches as on June 30, 2024, including 22 overseas branches. Almost 64% of branches are in rural and semi-urban areas, thereby offering access to low-cost deposits and enhancing financial penetration.
Comfortable resource profile The resource profile is supported by a large deposit base and comfortable mix of low-cost deposits, driven by strong presence in rural and semi-urban areas. Domestic, low-cost current account and savings account (CASA) deposits stood at 42.7% of total domestic deposits as on June 30, 2024 (43.2% as on March 31, 2024 and 44.7% as on March 31, 2023). Share of bulk deposits (>Rs 3 crore) is around 13% of its term deposits as of June 30, 2024. This, along with the high proportion of CASA deposits, enabled the bank to maintain its cost of deposit (CoD) at a competitive level; CoD was 4.7% in the first quarter of fiscal 2025 and 4.4% in fiscal 2024. Significant overseas presence (with foreign branches accounting for 15% of total deposits as on June 30, 2024) also supports the resource profile.
Weakness: Weak, albeit improving asset quality Gross non-performing assets (GNPA) shows continuous sign of improvement, supported by improved recoveries and write offs, and stood at 4.98% as on March 31, 2024. Nevertheless, it has declined from elevated levels of 7.31% as on March 31, 2023, 10.0% as on March 31, 2022 and 13.8% as on March 31, 2021. It has further improved to 4.6% as on June 30, 2024.
Improvement in asset quality metric over fiscal 2024 has been driven by corporate book where GNPA improved to 2.1% as on June 30, 2024 (2.4% as on March 31, 2024 and 6.5% as on March 31, 2023). Other segments also witnessed an improvement with GNPA in the retail, agriculture, micro, small and medium enterprise (MSME) and overseas book at 2.0% (2.1% as on March 31, 2024), 10.7% (11.3%), 13.2% (12.9%) and 0.4% (0.4%) respectively.
Slippages for fiscal 2024 were 1.6% of opening net advances as compared to 1.9% for the previous fiscal. The MSME segment accounted for 39% of the slippages while corporate including overseas book, retail and agricultural accounted for 23%, 7% and 31%, respectively. Nevertheless, the bank is working on various initiatives to strengthen its collections and recoveries. Ability to arrest slippages while managing collections and asset quality going forward this fiscal, is a key monitorable.
Average earnings, however, on an improving trend Earnings, after remaining constrained by elevated credit costs over fiscals 2016-2020, have exhibited improvement thereafter. The bank has been reporting quarterly profits since first quarter of fiscal 2021, supported by a lower credit cost. Overall Earnings profile in fiscal 2024 was marked by a return on assets (RoA) of 0.7% which is higher than an RoA of 0.5% for the previous fiscal. This was supported by controlled credit cost of 0.5% for fiscal 2024 (0.9% for previous fiscal). The pre-provisioning profit / average total assets, however, has remained range bound at 1.6-1.7% in the last two fiscals. During the first quarter of fiscal 2025, supported by better credit cost and stable NIMs, the bank reported a net profit of Rs 1,703 crore with an RoA of 0.7% (annualised).
The bank’s provision coverage continued to be comfortable at 92.1% as on June 30, 2024 (including technical write-offs, the provision coverage ratio stood at 89.5% as on same date). Ability of the bank to improve operating profit and contain credit cost will remain a key monitorable over the medium term |
Liquidity: Strong Liquidity is supported by a strong retail deposit base. Liquidity coverage ratio was around 153% for the quarter ended March 31, 2024, as against statutory minimum of 100%.
ESG profile CRISIL Ratings believes the Environment, Social and Governance (ESG) profile of BOI supports its already strong credit risk profile.
The ESG profile for financial sector entities typically 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 a direct adverse environmental impact, the lending decisions may have a bearing on the environment.
BOI has an ongoing focus on strengthening the various aspects of its ESG profile.
Key ESG highlights of BOI:
There is growing importance of ESG among investors and lenders. The commitment of BOI to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to domestic capital markets |
Outlook: Stable The credit risk profile derives significant strength from the strong support expected from GoI both on an ongoing basis and in the event of distress. However, the bank's asset quality and profitability will remain key monitorables over the medium term. . |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Bank BOI is the sixth-largest PSB in India, with gross advances of Rs 6 lakhs crore as on June 30, 2024. The bank had 5,177 branches and 8,234 automated teller machines and cash recycler machines across India as on June 30, 2024. A significant number of its branches cater to rural and semi-urban areas. It has strong presence in the corporate segment, with the bulk of its business and earnings coming from large corporate clients. It also has a strong presence overseas, with around 15.3% of its total business coming from outside India. GoI’s stake in the bank was 73.4% as on June 30, 2024.
For fiscal 2024, BOI reported net profit of Rs 6,318 crore on total income (net of interest expense) of Rs 29,148 crore as compared to Rs 4,023 crore and Rs 27,374 crore, respectively, in the previous fiscal. For the quarter ended June 30, 2024, net profit was Rs 1,703 crore against total income (net of interest expense) of Rs 7,578 crore, as compared to Rs 1,551 crore and Rs 7,376 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information Note on tier II instruments (under Basel III) The distinguishing feature of Tier II capital instruments under Basel III is the existence of the point of non-viability (PONV) trigger, the occurrence of which may result in loss of principal to the investors and hence, to default on the instrument by the issuer. According to the Basel III guidelines, the PONV trigger will be determined by the RBI. CRISIL Ratings believes the PONV trigger is a remote possibility in the Indian context, given the robust regulatory and supervisory framework and systemic importance of the banking sector. The inherent risk associated with the PONV feature is adequately factored into the rating on the instrument.
The distinguishing features of non-equity Tier-I capital instruments (under Basel III) are the existence of coupon discretion at all times, high capital thresholds for likely coupon non-payment and principal write-down (on breach of a pre-specified trigger). These features increase the risk attributes of non-equity Tier-I instruments over those of Tier-II instruments under Basel III and capital instruments under Basel II. To factor in these risks, CRISIL Ratings notches down the rating on these instruments from the bank's corporate credit rating. Factors that could trigger a default event for non-equity Tier-I capital instruments (under Basel III), resulting in non-payment of coupon, include: i) the bank exercising coupon discretion, ii) inadequacy of eligible reserves to honour coupon payment if the bank reports low profit or a loss or iii) the bank breaching the minimum regulatory CET I, including CCB, ratios. Moreover, given their additional risk attributes, the rating transition for non-equity Tier-I capital instruments (under Basel III) can potentially be higher than that for Tier-II instruments |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Not yet issued
Annexure - Details of Rating Withdrawn
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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