India Ratings affirms Bank of Baroda at 'AAA' with a stable outlook

The lender continues to be among the better capitalised PSBs, with a common equity tier 1 of 9.05 per cent in the first half of the current fiscal, against 9.23% in FY18

India Ratings and Research Monday affirmed state-run Bank of Baroda's long-term issuer rating at 'AAA', with a stable outlook.

It has also affirmed the lender's short-term issuer rating at 'A1+'.

The long-term issuer rating reflects Bank of Baroda's high systemically important position, and hence, a high probability of support from the government if required, the rating agency said in a note.

The lender continues to be among the better capitalised public sector banks (PSBs), with a common equity tier 1 of 9.05 per cent in the first half of the current fiscal, against 9.23 per cent in FY18.

The agency said its capitalisation could strengthen further if it manages its risk weights and growth, and increases its profitability.

The bank also has an option to raise capital by monetising non-core assets, planned over FY19-FY20, to support its capital requirements, it added.

"The bank is well-placed to gain market share in the current environment, where a sizeable proportion of banks and non-banking financial companies are struggling," the note said.

The lender's asset quality is modest with high delinquencies than similar rated banks, the agency said.

Its gross non-performing assets (NPAs) marginally declined to 11.78 per cent in the first half of FY19, compared with 12.26 per cent in FY18.

The provision coverage excluding technical write-offs was about 62 per cent in the first half of FY19.

The rating agency further said the Bank of Baroda-Dena Bank-Vijaya Bank merger could result in harmonisation of asset recognition.

The bank's had a total deposit market share of 5.3 per cent as on March 31, 2018.

The note said the share would further expand with the proposed merger with Dena Bank and Vijaya Bank.