 "Indian Overseas Bank, IOB")
Shares of Indian Overseas Bank rallied 15.4 per cent to Rs 31.05 apiece on the BSE in Friday's intra-day trade after Care Ratings assigned fresh rating to the lender's certificates of deposits.
At 12:00 PM, the shares were ruling 11.4 per cent higher at Rs 30.01 per share as against 0.5 per cent dip in the benchmark S&P BSE Sensex. The BSE Bankex index, meanwhile, was down 0.35 per cent. The shares inched closer to their 52-week high level of Rs 36.7 per share, touched on December 16, 2022.
A combined 125.17 million shares had changed hands on the counter on the NSE and BSE till the time of writing of this report.
On Thursday, August 10, the ratings agency assigned fresh 'CARE A1+' rating to the state-owned lender's Rs 10,000-crore CoD to factor-in the majority ownership by the Government of India and its demonstrated funding support.
During the period from financial year 2015-16 (FY16) to FY21, the bank raised equity to the tune of Rs 28,359 crore, of which Rs 27,634 crore was infused by the GoI. With the continuous equity infusion, the shareholding of the GoI has increased from 73.80 per cent as on March 31, 2015, to 96.38 per cent as on March 31, 2023. Care Ratings expects continuation of the strong support by the government.
"The rating also factors-in the long track record of operations with strong presence in south India, comfortable capitalisation levels, diversified advances book and deposit base with comfortable current account savings account (CASA). The rating, however, is constrained by moderate asset quality despite improvement seen over the past few years, with improvement in gross non-performing assets (GNPA) and gross stressed asset position," the agency said in its ratings rationale.
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IOB reported growth in gross advances of 21.3 per cent during FY23 with advances growing from Rs 155,801 crore as on March 31, 2022, to Rs 189,009 crore as on March 31, 2023. The top 20 individual borrowers constituted about 141 per cent of the net worth and 18.82 per cent of the gross advances. Notably, most of the top borrowers were government-owned entities and highly-rated corporate accounts.
Besides, the deposit base of IOB has been steadily growing over the years; however, there has been a marginal de-growth in FY23 to Rs 260,883 crore as on March 31, 2023 as against Rs 262,159 crore as on March 31, 2022. The CASA deposits remained stable comprising 43.7 per cent as on March 31, 2023 as against 43.4 per cent as on March 31, 2022.
Although the bank’s earnings profile has seen considerable improvement in the last two financial years as against the earlier years, the agency noted that the level of profitability continues to be moderate. It said the ratings may see a negative action if there is a significant change in the government's support or shareholding, and/or there is deterioration in asset quality with net NPA (NNPA) of 5 per cent or more on a sustained basis.
The bank's GNPA improved from 9.82 per cent as on March 31, 2022, to 7.44 per cent as on March 31, 2023. NNPA improved to 1.83 per cent as on March 31, 2023 as against 2.65 per cent as on March 31, 2022. The bank has written-off a portfolio amounting to Rs 3,413 crore and sold a portfolio to asset reconstruction company (ARC) amounting to Rs 11 crore during FY23 and has SR outstanding of Rs 506 crore as on March 31, 2023. The slippage ratio has improved to 3.18 per cent in FY23 as against 4.16 per cent in FY22.
GNPA and NNPA further improved and stood at 7.13 per cent and 1.44 per cent as on June 30, 2023.
The agency has assigned a 'Stable' outlook to the said certificates of deposits as it expects that IOB will be able to sustain profitability while maintaining comfortable capitalisation levels.
"Improved profitability, with return on total assets (ROTA) of above 1.00 per cent on a sustained basis, and improved asset quality parameters, with net stressed assets/tangible net worth (TNW) below 25 per cent on a sustained basis would lead to positive rating action," Care Ratings said. The bank's ROTA improved to 0.69 per cent in FY23 as against 0.60 per cent in FY22.
Meanwhile, the ratings agency also reaffirmed their 'CARE AA-' rating with 'Stable' outlook for both Tier-II Bonds (Basel-III)-I and Tier-II Bonds (Basel-III)-II.
Over the past one year, shares of Indian Overseas Bank have surged 53.5 per cent on the BSE as against around 11 per cent gain in the benchmark Sensex index.
