NewsCorporate ActionsICRA Assigns AA+ (Stable) Rating to Bank of India's Basel III Tier II BondsICRA Assigns AA+ (Stable) Rating to Bank of India's Basel III Tier II Bonds
ICRA has assigned an [ICRA]AA+ (Stable) rating to Bank of India's Basel III Tier II bonds program worth Rs 2,500 crore. The rating is based on BoI's strong capital position, improving asset quality, and government support. As of September 30, BoI's CET I and Tier I capital stood at 13.89% and 14.49% respectively. GNPA and NNPA have declined to 2.54% and 0.65%. The bank's net profit increased to Rs 4,807 crore in H1 of the current year. However, BoI's profitability remains below the public sector bank average, and its vulnerable book is still high relative to core capital.
*this image is generated using AI for illustrative purposes only.
Bank of India (BoI) has received a vote of confidence from credit rating agency ICRA, which has assigned an [ICRA]AA+ (Stable) rating to the bank's Basel III Tier II bonds program worth Rs 2,500 crore. This rating reflects the bank's strong financial position and its ongoing improvements in asset quality.
Key Factors Behind the Rating
ICRA's rating decision is based on several crucial factors:
Strong Capital Position: As of September 30, BoI's core equity capital (CET I) and Tier I capital stood at 13.89% and 14.49% respectively, excluding H1 profit. These figures indicate a robust capital base, well above regulatory requirements.
Improving Asset Quality: The bank has shown steady improvement in its asset quality metrics. Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) have declined to 2.54% and 0.65% respectively as of September 30, down from 3.27% and 0.82% on March 31.
Government Support: The rating factors in BoI's majority government ownership (73.38% as of September 30) and the demonstrated track record of capital support from the Government of India.
Profitability: While BoI's profitability has been improving, with a Return on Assets (RoA) of 0.91% (annualized) in H1, it remains below the public sector bank average of 1.12%.
Financial Performance
Bank of India has shown resilience and growth in its financial performance:
| Metric | H1 Current Year | H1 Previous Year |
|---|---|---|
| Net Profit | 4,807.00 | 4,076.00 |
| Total Assets | 10,69,000.00 | 9,78,000.00 |
*Figures in Rs crore
Challenges and Outlook
Despite the positive rating, ICRA has highlighted some challenges:
- The bank's profitability, while improving, remains below peer averages.
- The overall vulnerable book (special mention accounts and standard restructured book) continues to be high relative to core capital.
- Potential impact of global macroeconomic conditions on asset quality and profitability.
ICRA expects BoI to maintain its strong liquidity profile, given its large proportion of retail deposits and high portfolio of liquid investments.
Conclusion
The [ICRA]AA+ (Stable) rating for Bank of India's Basel III Tier II bonds program reflects the bank's strong financial foundation and improving asset quality. While challenges remain, particularly in terms of profitability compared to peers, the bank's government backing and improving metrics provide a stable outlook for investors.
Investors should note that Basel III Tier II bonds have equity-like loss-absorption features, which may result in higher loss severity compared to conventional debt instruments if the point of non-viability is triggered by the RBI.
Historical Stock Returns for Bank of India
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| +0.26% | -1.39% | -3.78% | +14.95% | +24.87% | +167.27% |
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