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Informist, Wednesday, Jul 31, 2024

--Fitch assigns 'BBB-' rating, stable outlook to Bank of Maharashtra

MUMBAI – Fitch assigned a long-term issuer default rating of 'BBB-' with a stable outlook to Bank of Maharashtra, the rating agency said today. Further, the agency assigned the bank a government support rating of 'bbb-' and a viability rating of 'b+'.

With the rating being the same as India's sovereign rating, Fitch expects extraordinary support from the government, it said. The government of India holds about 86% stake in the bank.

"The four-year average impaired-loan ratio fell to 3.9% in 2023-2024 (Apr-Mar), which is below Fitch's 5% threshold for a 'bb' score," the rating agency said. 

Fitch said Bank of Maharashtra's business profile had a score of 'bb', below that of most larger state-owned banks, mainly on account of a smaller national market share. With most of the bank's operations concentrated in Maharashtra, and with the bank having limited pricing power as a state-owned entity, it could be prompted to raise its risk appetite to protect or grow its margins and profits, Fitch said.

The rating agency expects the operating risk per risk-weighted assets to normalise a little in this financial year while still being above Fitch's 1.25% 'bb' threshold. In Apr-Jun, the bank's operating profit per risk-weighted assets was 3.6%. The ratio was 3.0% the previous financial year.

While any change in the government's rating outlook will affect the bank's rating, the viability rating is expected to fall "if the bank's heightened risk appetite were to become a more binding constraint on its moderate loss-absorption buffers", the rating agency said. This would reflect in its Common Equity Tier-1 ratio closer to 10%.

Fitch expects India's GDP to grow at 7.2% in 2024-25 (Apr-Mar), and above 6% till 2026-27, highlighting the robust medium-term growth potential. This was a key factor in the conducive environment for the bank.

Further, the rating agency said, similar to other state-owned banks, Bank of Maharashtra's governance was less developed, as evidenced by its significant lending to higher-risk borrowers and instances of weak oversight.

"The board is dominated by government appointees, and its business model is often focused on supporting government strategies, with lending directed towards promoting social and economic policies, which may include lending to state-owned companies. These factors also drive our view on the bank's state linkages, which affect support prospects that determine the long-term ratings," Fitch said.  End

Reported by Sourabh Kumar

Edited by Rajeev Pai

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