Moody's downgrades Bank of India

Moody's Investor Service on Wednesday downgraded ratings on Bank of India's debt programmes by one notch, citing an accelerated pace of asset quality deterioration, stressed core capital levels and increased pressure on profitability.

Slowing economic growth in India, high interest rates and inflation will continue to adversely impact repayment capacity of the bank's corporate borrowers, Moody's said on Wednesday.

"Moody's expects that it will be difficult for BOI to significantly improve its relatively weak asset quality over the next 12-18 months," it said.

Moody's revised its "Bank Financial Strength Rating" to D from D+ on a scale of A to E. India's sovereign rating is Baa3.

 

However, it affirmed the outlook on the debt and deposit ratings at stable.

Shares of the bank extended their fall to more than 3% after the downgrade but recouped some losses after a senior executive said the lender does not expect a deterioration in asset quality.

Bank of India expects bad loans in the financial year ending in March 2012 to be lower than the previous year, Executive Director N Seshadri told CNBC TV18.

The bank's non-performing loans rose to 2.74% by December-end from 2.23% in March 2011, while its net income dropped 14%. Moody's said the bank's return on risk weighted assets fell to 1.03% in the nine months to December 31 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," Moody's said.

The bank's core tier 1 capital stood at 7% at March 2011, which is weaker than peers. Other big state lenders have an average tier-I ratio of around 9%.

The bank's high exposure to Indian government securities and the government's role in providing management support for state banks has been factored in the downgrade, Moody's said.

In October, Moody's downgraded the standalone rating for State Bank of India, the country's largest lender, sending its shares to their lowest level in 2 years.

A month later, it downgraded its outlook for India's banking system to "negative" from "stable" on concerns about asset quality and profitability.

At 3:04 pm, Bank of India shares, which have a market capitalisation of $3.9 billion, were down 0.67% at 349.9 rupees in a flat Mumbai market.

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 -- Ba3 for hybrid tier 1 debt (preferred stock non-cumulative)

*(P) is a provisional rating