Moody's Investors Service on Wednesday downgraded the ratings assigned to the various debt programmes of Bank of India (BOI) by one notch citing an accelerated pace of asset quality deterioration, stressed core capital levels and increased pressure on profitability.

BOI's revised bank financial strength rating (BFSR) has been downgraded from D+ to D. Moody's also warned that the rating outlook and D BFSR would come under pressure within the next 12 months, if BOI continued to experience the pace of deterioration in asset quality, capitalisation and profitability indicators seen for the nine months ended December 2011.

The revised BFSR also factors in its high “single-party exposure” to Indian government securities and the government's role in providing management support for public sector banks. However, it affirmed the outlook on the debt and deposit ratings at stable.

Moody's expects that it will be difficult for BOI to significantly improve its relatively weak asset quality over the next 12-18 months.

Moody's views the rapid increase in the formation rate of non-performing loans (NPL) at BOI to 3.2 per cent on an annualised basis during the nine months ended December 2011 from 1.7 per cent for the year-ended March 2011.

Moody's analysis also considers the bank's comparatively low provisioning cover as well as its recent sharper decline in net income relative to its rated peers.

In addition, its core Tier-1 capital level stood at 7 per cent as of March 31, 2011, and which not only compares weak against its peers, but is also exacerbated by low internal capital generation of under 1 per cent of risk weighted assets.

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