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 1,34,523 crore as at March 31, 2023 (Rs 117,619 crore as at March 31, 2022). Of the total loans ended March 31,2023, 74% was foreign currency loans while the remaining 26% was rupee denominated (77% and 23%, respectively, as at March 31, 2022). Also, the share of policy business (as a proportion of total business) has remained stable at 51% as at March 31, 2023 as compared to fiscal 2022.

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 end of fiscal 2023. Further, coupled with positive internal accrual, networth improved to Rs 20,628 crore as at March 31, 2023 (Rs 19,228 crore as at March 31, 2022). As a result, the bank’s total capital adequacy and tier I ratio stood at 25.4% and 23.7%, respectively, as at March 31, 2023 (30.5% and 28.6%, respectively, as at March 31, 2022). Capitalisation is expected to remain strong over the medium term, backed by periodic capital infusions from the GOI.

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 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. 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 at March 31, 2023 as against 3.6% as at March 31, 2022. These accounts are covered under Buyer’s Credit under the National Export Insurance Account (BC-NEIA) and therefore, eventual losses on these accounts are expected to be NIL.

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 March 31, 2023 (100% end of fiscal 2022), owing to which the net NPA ratio stood at 0.7% as at March 31,2023 (nil as at March 31, 2022).

Exim Bank has relatively low profitability 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 fiscal 2023. The bank reported a profit of Rs 1,556 crore (up 109%) on a net interest income of Rs 3,456 crore as compared to profit of Rs 738 crore on a net interest income of Rs 3,087 crore in fiscal 2022. The margins (on total income net of interest expenses) remained stable at 2.6% as at March 31, 2023 in comparison to 2.6% as at March 31, 2022 driven by competitive cost of borrowings. The provisioning costs increased to 1.0% in fiscal 2023 from 0.7% in fiscal 2022 on account of increase in slippages, nevertheless recoveries and upgradation also remained high at Rs. 5,503 crore in fiscal 2023 as against Rs. 1,701 crore in fiscal 2022. Consequently, the overall profitability improved with return on average assets of 1.0% in fiscal 2023, as compared to 0.5% in fiscal 2022.