Fitch Upgrades Bank of India's Individual Rating

Fitch Ratings on 12th July 2007 upgraded the Individual rating of Bank of India (BoI) to 'C/D' from 'D'. The Support rating is affirmed at '2'.

The upgrade reflects BoI's improved performance in recent years on the back of a robust domestic economy that has resulted in the reported asset quality and net interest margin (NIM) now being in line with India's better government banks. The Support rating draws on BoI's systemic importance and its position as the sixth-largest Indian bank with a national footprint.

Higher growth in the better yielding SME and retail segments has helped boost NIM, and together with lower depreciation in the available for sale portfolio of government securities has aided the improvement in Return on Assets since FY06. BoI's international business also supports its fee income to a slightly higher level compared with most government banks, though it trails the better 'new' private banks in this regard.

Reported NPL ratios improved significantly on the back of recoveries from legacy delinquent accounts. NPLs could however increase as the retail loan portfolio starts to season and rising interest rates affect borrowers' repayment capacity. The rapid growth has also necessitated greater sophistication in risk management and loan monitoring, especially in the relatively new consumer loan business; BoI has been investing in technology to improve its processes and risk management.

Equity infusion will soon be necessary not only to support growth but to provide for operational risk under Basel II, as well as to invest in the proposed life insurance joint venture. While BoI has headroom to raise equity from the market, it plans to raise hybrid Tier 1 and Tier 2 capital to meet its capital needs in FY08. The Tier 1 ratio is planned to be maintained at slightly above 6%, which is lower than the 8% level targeted by most large banks in India and may need to be increased to provide greater cushion against the underlying risks faced in the increasingly challenging environment.

BoI's 2,700 branches are spread throughout the country. International business (on the back of Indian trade) out of UK, the US and Singapore accounts for 21% of the bank's assets and 25% of net income. The government's shareholding in the bank is 69.5%.

(This is press release of Fitch Ratings)

NOTE-Global-rating agency Fitch has upgraded its support ratings on 16th March 2007 for several Indian banks. The support rating has been upgraded from ‘2’ to ‘3’ for ICICI Bank, Punjab National Bank, Canara Bank, Bank of Baroda, Bank of India, Union Bank of India and IDBI Ltd, a Fitch release said. For HDFC Bank, Uco Bank, Indian Overseas Bank, Oriental Bank of Commerce and Allahabad Bank, the rating has been upgraded to ‘3’ from ‘4’.

It has upgraded IDBI’s long-term foreign currency Issuer Default Rating to ‘BBB-’ (BBB minus) from BB+ and its individual rating to ‘C/D’ from ‘D/E’. The actions reflect the government’s improved ability to provide timely support to banks as reflected in the government’s long-term foreign currency IDR of ‘BBB-’.

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