Outlook on Standalone Rating Revised to Negative
Singapore, March 15, 2013 -- Moody's Investors Service has affirmed the supported deposit ratings of
Baa3/P-3 of Bank of India (BOI), and has assigned a Baa3
to a newly proposed USD denominated senior unsecured bond (rule 144A)
to be issued via BOI's London Branch in an amount of up to USD 1
billion with a maturity of 5.5 years. The proposed bond
will be listed on Singapore exchange. The outlook on these supported
ratings is stable.
At the same time, Moody's has affirmed the bank's standalone
bank financial strength rating (BFSR) of D, which maps to a baseline
credit assessment (BCA) of ba2 on the long-term scale, but
has revised the rating outlook to negative on this rating.
The negative outlook on BOI's standalone rating reflects the pressure
arising from the persistently difficult economic environment in India,
which poses risk of further asset quality deterioration, and the
weak shock-absorbing buffers when compared to similarly-rated
peers. On the other hand, the stable outlook on the supported
ratings reflects the high probability of support that we would expect
in times of stress, and the high likelihood that the bank deposit
rating would remain at Baa3 even if its standalone rating were to be downgraded
to ba3 in the future, given BOI's majority government ownership
and its importance to the banking system.
A list of all ratings affected by today's action is provided at
the end of this press release.
RATINGS RATIONALE
The revision in rating outlook to negative on the standalone BFSR/BCA
takes into account BOI's weak position vis-à-vis
its domestic and global peers, particularly with respect to its
asset quality vulnerability, the decline in profitability that it
has recently experienced and its relatively weak core capital level and
internal capital generation capacity. These factors prevent the
bank to sustain its own loan growth and cause the bank to continue to
need frequent capital injections by the government. On the positive
side, BOI's rating takes into account its strong domestic
franchise, comfortable liquidity and stable funding profile.
BOI's asset quality has weakened over the last year, with
a rise in impaired loans (gross non-performing loans plus restructured
loans) as a percentage of total loans to 9.6% at end-December
2012 from 8.8% at end-March 2012. Going forward,
although there are signs of moderation in the challenges characterizing
the operating environment - moderation in inflation and interest
rates - they are not significant enough yet to mitigate the pressures
on repayment capacity of corporate borrowers and hence continue to pose
risks to bank's asset quality.
As a percentage of average risk weighted assets, at end-March
2012, BOI reported a relatively lower pre-provision profits
of 3.20% and net income of 1.22%. More
particularly, Moody's expects pressured net interest margins
and rising credit costs to continue to pressure pre-provision and
net income levels
Lower net income levels result in lower internal capital generation,
necessitating external capital infusion from government of India to maintain
capital position. In March 2013, the Indian government infused
INR 8.1 billion of equity capital to maintain
BOI's tier 1 capital at 8.3% at December 31 2012,
including nine-month profits. Nevertheless, BOI's
shock absorbing buffer is low as a result of low provisioning coverage
of 36% of gross non-performing loans or 12% of impaired
loans. Moreover, when comparing Indian banks, including
BOI, to regional peers their asset quality, profitability
and capitalization levels stand lower.
Moody's has revised BOI's foreign hybrid Tier 1 debt rating
(preferred stock non-cumulative) to B2(hyb), as these ratings
of junior securities are notched off adjusted BCA under our principal
methodology for bank ratings. The B2(hyb) rating of these junior
securities carries a negative outlook, in line with the negative
outlook on the standalone rating.
The list of ratings assigned to BOI and its branches are:
(P)Baa3 for foreign currency senior unsecured debt program, stable
outlook
(P)Ba1 for foreign currency subordinated debt program, stable outlook
(P)Ba2 for foreign currency junior subordinated debt program, stable
outlook, and
B2 (hyb) for hybrid tier 1 debt (preferred stock non-cumulative),
negative outlook.
Bank of India, London branch
(P)Baa3 for foreign currency senior unsecured debt program, stable
outlook
Baa3 for foreign currency senior unsecured debt, stable outlook
(P)Ba1 for foreign currency subordinated debt program, stable outlook,
and
Ba1 for foreign currency subordinated debt, stable outlook.
Bank of India, Jersey branch
(P)Baa3 for foreign currency senior unsecured debt program, stable
outlook
(P)Ba1 for foreign currency subordinated debt program, stable outlook
(P)Ba2 for foreign currency junior subordinated debt program, stable
outlook, and
B2 (hyb) for hybrid tier 1 debt (preferred stock non-cumulative),
negative outlook.
BOI's ratings are unlikely to be revised upwards, given the
negative outlook on the standalone ratings.
BOI's ratings could face downward pressure if asset quality deteriorates
further with its reported gross non-performing loan ratio increasing
to above 5% or total impaired loans increasing to over 10.5%
of total loans. A deterioration in the bank's loss-absorbing
buffer, and more particularly a decline in its Tier 1 capital level
to below 8% at year-end, or a material decline in
the combination of profits, loan-loss reserves and capital
relative to impaired assets. A downgrade of the Indian government's
ratings would have negative implications for BOI's ratings.
The principal methodology used in this rating was Moody's Consolidated
Global Bank Rating Methodology published in June 2012. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
Bank of India, headquartered in Mumbai, had assets of INR3.85
trillion as of 31 March 2012.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vineet Gupta
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's affirms the deposit ratings of Bank of India, assigns new senior debt rating
