CRISIL AA + / Stable attributed to Tier II bonds (under Basel III), rating of Tier I bonds (under Basel III) upgraded to CRISIL AA / Stable
CRISIL Ratings has upgraded its rating on level I bonds (under Basel III) of the Bank of India (BOI) to “CRISIL AA / Stable” from “CRISIL AA- / Stable”. CRISIL Ratings also assigned its “CRISIL AA + / Stable” rating to Rs 1,800 crore Tier II bonds (under Basel III) and reaffirmed its “CRISIL AA + / Stable / CRISIL A1 +” ratings on Tier II bonds (under Basel III) and the certificate of deposit.
CRISIL Ratings has also withdrawn its rating on Level II (under Basel III) bonds of Rs. 1,500 crore (see appendix “Details of withdrawn valuation” for further details) in accordance with its withdrawal policy. CRISIL has received independent verification that these instruments are fully reimbursed.
The upgrading of the Tier I bond rating (under Basel III) takes into account the improvement in the BOI’s position to make future coupon payments, supported by an adjustment of losses accumulated with the issue premium account, and improving capital ratios. As a result of the adjustment, the bank’s eligible reserves / total assets ratio improved. In addition, see Financial Services Department Gazette notification no. CG-DL-E-23032020-218862 (SO 1200 E) of 23.03.2020 called Amendment regime for nationalized banks (management and various provisions), 2020, the bank still has issue premium reserves that can be used to offset possible losses in the future, and this supports the credit profile of Level I instruments (under Basel III). However, any substantial depletion of the issue premium account or any regulatory change in the allocation of the issue premium account relating to the accumulated loss adjustment are key controls.
Supported by the regular capital injection by the Government of India (GoI) and an increase in accrual accounting, the capital ratios of the BOI have improved, as evidenced by level 1 and the overall ratio d The risk-weighted capital adequacy (CRAR) of 12.0% and 15.1%, respectively. , as of June 30, 2021 versus 9.5% and 12.8%, respectively, as of June 30, 2020 (12.0% and 14.9%, respectively, as of March 31, 2021). In addition, the recent Qualified Institutional Placement (QIP) of Rs 2,550 crore in August 2021 is also expected to support the capital situation.
Overall ratings continue to reflect the expectation of strong support from the majority shareholder, GoI, as well as the established market position and comfortable resource profile of the bank. These strengths are partly offset by low asset quality and a modest earnings profile.
The rating of level I bonds (according to Basel III) meets the “CRISIL rating criteria for banking instruments compliant with BASEL III”. CRISIL Ratings assesses (i) the bank’s reserve position (adjusted for any medium-term stress on profitability) and (ii) amortization against minimum regulatory CET1 capital ratios (including CCB). The demonstrated history and management philosophy of maintaining a sufficient CET1 capital buffer above minimum regulatory requirements is also assessed.
The distinctive features of Class I capital instruments other than shares (under Basel III) are the existence of discretionary power over coupons at all times, high capital thresholds for probable non-payment of coupons and a depreciation of the principal (in the event of violation of a predefined trigger threshold). These characteristics increase the risk attributes of Level I non-equity instruments relative to those of Basel III Level II instruments and Basel II capital instruments. To take these risks into account, CRISIL Ratings downgrades the rating of these instruments from the bank’s corporate rating.
The factors that could trigger a default event for Class I capital instruments other than capital (under Basel III), resulting in non-payment of the coupon, are: i) the bank exercising its discretion over the coupon ; ii) insufficient eligible reserves to meet the coupon payment if the bank reports a loss or low profit; or iii) the bank does not comply with the minimum regulatory Common Equity Tier I (CET I, including the Capital Conservation Buffer) ratio. In addition, given the additional risk characteristics, the rating transition for Class I capital instruments other than capital (under Basel III) can potentially be higher and faster than that for Class II instruments.
In accordance with relief measures announced by the Reserve Bank of India (RBI) during the Covid-19 pandemic, the BoI had granted a moratorium to its borrowers. Although the collections declined in the first few months, they gradually increased thereafter. However, the second wave of the pandemic resulted in intermittent blockages and localized restrictions, again impacting collections. Although the impact has been moderate during this phase, any unfavorable change in the payment discipline of borrowers can lead to an increase in delinquencies.
As part of the arrangements announced by the RBI on January 1, 2019, February 11, 2020 and August 6, 2020, and the framework for resolving stressed accounts, the BoI had restructured 3.2% of gross advances as of June 30, 2021 In accordance with the RBI Framework 2.0 resolution in May 2021, the restructuring amounts to 1.3% of gross advances; the ratio could be higher and is still under consideration. Nonetheless, the bank’s ability to manage collections and asset quality in the future this exercise is a key controllable element. Also in the future, the impact of the third wave of the pandemic, if and when it occurs in terms of spread, intensity and duration, will also be closely monitored.
Bank of India shares were last trading in BSE at Rs. 54.5 from the previous close of Rs. 54.7. The total number of shares traded during the day was 608,800 in more than 3,751 trades.
The share hit an intraday high of Rs. 56.1 and an intraday low of 54.4. The net turnover during the day was Rs. 33,521,865.