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 2341 spread across both rural and urban areas with a strong regional franchise and majority branches being in Maharashtra. As of September 30, 2023 the Government holds 86.46 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 9000 Cr over FY2017-20 has helped bank in maintaining healthy capitalisation metrics. The capital adequacy and Tier I ratio stood 17.61 percent and 13.72 percent respectively as on September 2023 (CAR:16.71 percent and Tier I:12.89 percent as on September 30, 2022) reflecting an adequate cushion to withstand incremental losses without further capital infusion. The capital position is further reinforced by a strong provision coverage of 98.40 percent (including tec write-offs) as on September 30, 2023. The bank raised, 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. Further the bank raised Rs. 1000 Cr via QIP route and Rs.515 Cr from Tier II capital issued in H1FY24. resulting in further improvement in liquidity.
The resource profile derives strength from robust Current Account Savings Account (CASA) base of the bank which is highest among the PSU banks at 53.38 percent as on 31^st March 2023 as against 57.85 percent as on 31^st March 2022. The CASA ratio in H1FY24 saw a deterioration and stood at 50.71 percent in September 2023 in results to shift towards fixed deposits due higher interest rates on term deposits as against savings deposits. The banks total deposits grew by 15.71 percent which was higher than the industry growth in FY23 growing from Rs 2,02,295 Cr to Rs 2,34,083 Cr.
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 improved to 2.19 percent as on September 30, 2023, from 3.40 percent as on September 30, 2022, due declining slippages coupled with improving recoveries. 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 98.40 percent as on September 30, 2023, 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 58.58 percent of the gross advances as on September 30, 2023. While Corporate and other advances has seen a growth of 22.39 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. 1,802 Cr in H1FY24 (Rs 987 Cr in H1FY23). For FY2023 profit stood at Rs. 2,602 Cr. as compared to Rs 1,152 Cr in FY2022 aided by 25.81 percent growth in pre- provisioning operating profits from FY2022 Rs 4,848 Cr to Rs. 6099 Cr during FY2023. The yield on funds improved to 7.40 percent in September 2023 (September 2022: 6.39 percent), cost of funds stood at 3.82 percent in H1FY24 which led to improvement in NIM to 3.88 percent in H1FY24 as against 3.41 percent  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 51 percent of its branch network and more than 60 percent of its business in Maharashtra as on March 31,2023. 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.