Singapore, March 07, 2012 -- Moody's Investors Service has downgraded by one notch the ratings assigned
to the various debt programs of Bank of India (BOI).
The revised ratings are:
(P)Baa3 for foreign currency senior unsecured debt program
Baa3 for foreign currency senior unsecured debt
(P)Ba1 for foreign currency subordinated debt program
Ba1 for foreign currency subordinated debt
(P)Ba2 for foreign currency junior subordinated debt program and
Ba3 for hybrid tier 1 debt (preferred stock non-cumulative).
The outlook on the debt and deposit ratings is affirmed at stable.
BOI raises foreign currency debt through its London and Jersey branches.
"These downgrades are driven by our revision of BOI's bank
financial strength rating (BFSR) from D+ to D, now mapping
to a baseline credit assessment (BCA) of Ba2. The outstanding local
currency deposit rating is downgraded by one notch to Baa3/P-3
from Baa2/P-2, whereas the foreign currency deposit rating
is affirmed at Baa3/P-3, and is no longer constrained by
the country ceiling," says Vineet Gupta, a Moody's
Vice President and Senior Analyst.
RATING RATIONALE
The revised BFSR takes into account the accelerated pace of deterioration
in BOI's asset quality, its stressed core capital levels and
therefore the increasing pressures on its profitability.
The BFSR rating also factors in its high single-party exposure
to Indian government securities and the government's role in providing
management support for Indian public-sector banks.
Moody's expects that it will be difficult for BOI to significantly
improve its relatively weak asset quality over the next 12 -18
months. The Indian operating environment is characterized by an
economic slowdown, high interest rates, and high inflation,
which together will continue to adversely impact the repayment capacity
of corporate borrowers. Such a situation poses risks of further
deterioration in the bank's asset quality.
Moody's views, as evidence of this trend, the rapid
increase in the formation rate of non-performing loans (NPL) at
BOI to 3.2% on an annualized basis during the 9 months ended
December 2011 from 1.7% for the year-ended March
2011.
Moody's analysis also considers the bank's comparatively low
provisioning cover as well as its recent sharper decline in net income
relative to its Ba1-rated peers. This includes a 14%
drop in net income levels, while its return on risk weighted assets
decreased to 1.03% on an annualized basis during the 9 months
ended December 2011 from 1.51% a year ago.
Such figures compare weakly with its peers and indicate a vulnerability
in the bank's already stressed capital buffers.
In addition, its core tier 1 capital level stood at 7% as
of 31 March, 2011, and which not only compares weak against
its peers, but is also exacerbated by low internal capital generation
of under 1% of risk weighted assets.
On the other hand, the ratings also reflect BOI's comfortable
liquidity and funding profiles, as well as its franchise value as
the fourth largest public-sector bank in India in terms of total
assets.
The rating outlook and D BFSR would come under pressure within the next
12 months, if BOI continues to experience the pace of deterioration
in asset quality, capitalization and profitability indicators seen
for the 9 months ended December 2011.
The supported ratings of its senior debt program at (P)Baa3, subordinated
debt program at (P)Ba1, and junior subordinated debt at Ba2 could
also be downgraded if the assumptions regarding support available to BOI
or Moody's notching principles underwent any change.
In the current prevailing Indian operating environment, Moody's
does not expect BOI's D BFSR and supported ratings for local currency
deposits at Baa3/P-3 to be upgraded over next 12-18 months.
The methodologies used in this rating were Bank Financial Strength Ratings:
Global Methodology published in February 2007, Incorporation of
Joint-Default Analysis into Moody's Bank Ratings: A Refined
Methodology published in March 2007, and Moody's Guidelines for
Rating Bank Hybrid Securities and Subordinated Debt published in November
2009. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
BOI, headquartered in Mumbai, had assets of INR3,511
billion as of 31 March 2011.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
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on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
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are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant 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
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this announcement provides relevant 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,
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Vineet Gupta
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
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Stephen Long
MD - Financial Institutions
Financial Institutions Group
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Moody's downgrades Bank of India; outlook stable
