Ownership and demonstrated capital support from the Government

BoM remains one of the 12 public sector banks in India subsequent to the consolidation exercise undertaken by the GoI in FY19-20. The bank operates through an extensive network of 2066 spread across both rural and urban areas with a strong regional franchise and majority branches being in Maharashtra. As of September 30, 2022 the Government holds 90.97 percent  stake in the bank and demonstrated its proactive support to the bank through a regular equity infusion of funds underlining its strategic importance of the bank in furthering the objective of financial inclusion.
Acuité believes that the Government will continue to provide significant support not only for the large and consolidated public sector banks but also for the smaller and regional banks such as BoM which have a significant presence in particular states and play a key role in the penetration of financial services and social development therein. Nonetheless, any material dilution in stake by the Government as part of the divestment programme will be a key monitorable. In our opinion, such a likelihood is low in the near to medium term.
  
 Comfortable capitalization levels & resources profile
 
The support from GoI in the form of regular equity infusions aggregating to about Rs 8707 Cr over FY2017-20 along with recent infusion of amount 403.70 from investors via QIP route in July 2021 has helped bank in maintaining healthy capitalisation metrics . The capital adequacy and Tier I ratio stood 16.71 percent  and 12.89 percent  respectively as on September 2022 (CAR:14.67percent  and Tier I:11.38percent  as on September 30, 2021) reflecting an adequate cushion to withstand incremental losses without further capital infusion. The capital position is further reinforced by a strong provision coverage of 96.06 percent  (including tec write-offs) as on September 30, 2022. The bank raised Rs. 403.70 Cr via QIP route in July 2021 and Rs.1000 Cr from Tier II bonds issued in October 2021. Further the bank raised Rs 290 Cr AT-1 Bonds in March 2022, Rs 710 Cr AT-1 Bonds in September 2022, Rs. 2000 Cr Certificate of Deposit in October 2022, Rs 3000 Cr Certificate of Deposit in November 2022 and Rs 348 Cr Tier II bonds in December 2022  resulting in further improvement in capitalization levels and liquidity.
The resource profile derives strength from robust Current Account Savings Account (CASA) base at 56.27 percent  as on September 30, 2022  which steadily improved from 53.91 percent  as on September 30, 2021, aided by steady accretion in low-cost deposits coupled with subdued growth in bulk deposits over this period. Given the sizeable presence in semi urban and rural areas (55.52  percent  of the overall branches), the bank is able to mobilize small ticket deposits as reflected in healthy share of CASA and Term deposit Deposits has shown growth, the total deposits grew by 7.86 percent  year-on-year to Rs. 1,95,849 Cr as on September 30, 2022. and CASA deposits increased by 12.58 percent  year-on-year in September 2022. However the overall deposits and CASA have marginally declined from their levels as on March 31, 2022 which stood at Rs. 2,02,294 Cr & Rs. 1,17,035 Cr respectively.

Acuité believes that capital position will remain adequate in the near to medium term considering the bank’s plan of raising Tier 1 capital through AT1 bonds ensuring the continuity of adequate capital position. Acuite also expects Bank of Maharashtra to continue to benefit by way of access to lower cost of funds on the back of its sovereign parentage, stable retail deposit base and robust CASA share.
 

 Improvement in  asset quality & operating performance

The bank’s GNPA levels have steadily improved to 3.40 percent  as on September 30, 2022 , from 5.56 percent  as on September 30, 2021, due to an aggressive write off and provisioning policy, however the actual recoveries have not been that significant except for a few historical NCLT cases. Further, the extent of the stress in the advance’s portfolio has diminished in the current year, which is reflected in the low slippage ratio.  
The rating continues to factor in high provision coverage (including technical write-offs) of 96.06  percent  as on September 30, 2022, which provides adequate buffer to mitigate asset quality pressures in the near to medium term.
 The bank has been able to improve its resources profile by focusing on CASA deposits. Healthy CASA franchise coupled with focus on improving RAM (retail, agriculture and MSME) advances has led to healthy margins. RAM (retail, agriculture and MSME) advances stood at 58.19 percent  of the gross advances as on September 30, 2022. While Corporate and other advances has seen a growth of 38.56 percent  y-o-y which largely came from incremental exposures taken into state government undertakings. The bank has witnessed noticeable and sustained improvement in financial performance marked by profits (PAT) of Rs. 987 Cr in H1FY23 (Rs 472 Cr in H1FY22). For FY2022 profit stood at Rs. 1152 Cr. as compared to Rs 550 Cr in FY2021 aided by 22 percent  growth in pre- provisioning operating profits from FY2021 Rs 3,960 Cr to Rs. 4,848 Cr during FY2022. The yield on funds improved to 6.39 percent  in September 2022 (September 2021: 6.32 percent ), cost of funds stood at 3.25percent  in H1FY23 which led to improvement in NIM to 3.41percent  in H1FY23 as against 3.16percent  in H1FY23.
While Acuité take cognizance of improvement in profitable parameter it continues to remain moderate.

Regional Concentration

 While Maharashtra is one of the more economically developed states in India, BoM has a high concentration in the state in terms of advances and deposits. It is the only bank with nearly 57 percent  of its branch network and 69percent  of its business in Maharashtra as on March 31,2022. The high concentration may have an impact on not only asset quality but also on the growth of deposits and advances in the near term.