CRISIL assigns 'AA' to Bank of Maharashtra bonds

Our Banking Bureau
31 January 2005

CRISIL has assigned the 'AA' rating to Bank of Maharashtra (BoM) bonds, based on its majority ownership by the government of India. The rating also reflects the bank's strong liquidity position and moderate resource profile. The bank's average capital position, asset quality and profitability and high geographic concentration, however, temper its overall risk profile.

Many Indian banks are supported by strong liquidity, limited vulnerability to external capital flows and the high likelihood of systemic support in the event of difficulty. Additionally, public sector banks such as the Bank of Maharashtra benefit from government support, out of its moral obligation as an owner.

Bank of Maharashtra had 1,276 branches as on March 31, 2004, of which 71 per cent were located in the state of Maharashtra. It had a total deposit base of Rs264.46 billion and advances of Rs117.32 billion. The bank reported a profit after tax (PAT) of Rs3.05 billion in FY 2003-04 and Rs1.08 billion in the first half of FY 2004-05.

BoM's strong liquidity profile is reflected in the excess G-sec investments it maintains for statutory liquidity ratio, access to call money markets, a large proportion of stable savings deposits at about 23 per cent and growth in deposits in line with the industry. The bank''s gross non performing assets (NPAs) at 7.70 per cent of gross advances and net NPAs at 2.46 per cent of net advances are at moderate levels.

Its asset quality profile is tempered by a significant exposure to the small and medium enterprises segment, which has exhibited high NPAs, as well as a high geographical concentration of advances in Maharashtra. The bank's capital adequacy position is average, with a relatively low coverage of weak assets, a moderate Tier 1 ratio of 7.03 per cent, and relatively small tier I capital.

The bank's strategy is to diversify its geographical presence, mainly in North India, to broadbase its business profile. It is targeting a business size (advances plus deposits) of around Rs460 billion in FY 2004-05. It also plans to increase its credit/deposit ratio with a mix of lending to large corporates, the SME segment and retail, focusing on raising core deposits and on reducing the cost of deposits. The bank is augmenting its risk management systems and implementing a technology plan, which includes expansion of its ATM network, introduction of core banking solutions, addition of technology-enabled delivery channels and computerisation of rural branches.