Moodys downgrades Bank of Indias debt paper

Moodys Investor Service downgraded ratings on Bank of Indias debt programmes by one notch citing an accelerated pace of asset quality deterioration,stressed core capital levels and increased pressure on profitability,global rating firm

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Moodys Investor Service on Wednesday downgraded ratings on Bank of Indias debt programmes by one notch citing an accelerated pace of asset quality deterioration,stressed core capital levels and increased pressure on profitability,global rating firm.

The US firm revised its Bank Financial Strength Rating to D from D+ on a scale of A to E. Indias sovereign rating is Baa3.

However,it affirmed the outlook on the debt and deposit ratings at stable. Slowing economic growth in India,high interest rates and inflation will continue to adversely impact repayment capacity of the banks corporate borrowers,Moodys said.

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Moodys expects that it will be difficult for BoI to improve its relatively weak asset quality over the next 12-18 months, it said.

The banks non-performing loans rose to 2.74 per cent by December-end from 2.23 percent in March 2011,while its net income dropped 14 per cent. Moodys said the banks return on risk weighted assets fell to 1.03 per cent in the nine months to December 31 from 1.51 percent a year ago. Such figures compare weakly with its peers and indicate a vulnerability in the banks already stressed capital buffers, Moodys said.

The banks core tier 1 capital stood at 7 per cent at March 2011,which is weaker than peers. Other big state lenders have an average tier-I ratio of around 9 percent.

BoI shares fell nearly three per cent before closing 0.70 per cent down at Rs 350 on the BSE.

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The banks high exposure to government securities and the governments role in providing management support for state banks had been factored in the downgrade,Moodys said.