Bank of India has received positive rating action from Fitch Ratings, with the international credit rating agency affirming the bank's long-term issuer default rating at 'BBB-' while upgrading its viability rating to 'BB' from 'BB-'. The bank formally disclosed this development to stock exchanges through a regulatory filing under SEBI (LODR) Regulation 30.

Rating Action Details

Fitch Ratings affirmed the Long-Term Issuer Default Ratings (IDRs) of Bank of India and its wholly owned subsidiary, Bank of India (New Zealand) Limited, at 'BBB-' with a Stable Outlook. The agency upgraded the bank's Viability Rating to 'BB' from 'BB-' and affirmed the Government Support Rating at 'BBB-' and Short-Term IDR at 'F3'.

Key Performance Improvements

The viability rating upgrade reflects significant improvements across multiple financial metrics. The bank's impaired loan ratio fell by 100bp to 2.30% in 9MFY26, outperforming Fitch's 2.40% projection. Credit costs declined to 0.40% of loans in 9MFY26 from 1.00% in FY25, while specific loan-loss coverage remained steady at 73.90%.

Enhanced Risk Profile and Capitalisation

Fitch revised the bank's risk profile score to 'BB-' from 'B+', reflecting a more diversified loan mix and improved underwriting standards. The common equity Tier 1 ratio rose by about 50bp to 15.30% in 9MFY26, maintaining a substantial 400bp buffer above Fitch's 10% threshold for the 'BB' category.

The agency expects the operating profit/risk-weighted asset ratio to remain close to 2.50% through FY27, supported by better margins and tight cost controls. The loan/customer deposit ratio rose by about 200bp to approximately 89% in 9MFY26, remaining comparable with peer banks.

Government Support and Market Position

The 'BBB-' rating reflects Fitch's assessment of high probability of extraordinary state support, considering the government's 73% ownership stake and the bank's position as India's sixth-largest state-owned bank. The rating remains equalised with India's sovereign rating, with the Stable Outlook mirroring the sovereign outlook.

Fitch noted positive outlooks on most rating factor scores, reflecting potential for further improvements if the operating environment score is revised upwards. The agency recently revised the outlook on Indian banks' operating environment to positive from stable, citing reduced sector risks due to enhanced regulation and supervision by the Reserve Bank of India.

The Reserve Bank of India Governor has put forward a proposal to eliminate the existing 2.5 trillion INR ceiling on the Voluntary Retention Route (VRR). This development marks a significant policy consideration in India's foreign investment regulatory framework.

Current VRR Framework

The Voluntary Retention Route currently operates under a structured limit system, with the existing ceiling set at 2.5 trillion INR. This mechanism serves as a regulatory pathway for foreign investment participation in Indian markets.

Proposed Policy Change

The Governor's proposal suggests a complete lifting of this limit, which could represent a substantial shift in the regulatory approach toward foreign investment management.

Regulatory Implications

The proposed removal of the 2.5 trillion INR limit would eliminate the current quantitative restriction on the VRR mechanism. This policy consideration comes as part of ongoing discussions regarding foreign investment frameworks in India's financial markets.

The VRR serves as an important channel for foreign investor participation, and any changes to its operational parameters could have implications for market access and investment flows. The proposal reflects ongoing policy deliberations within India's central banking framework regarding optimal foreign investment management approaches.