Bank of Maharashtra Gets ICRA AA+ Rating Reaffirmed; Stable Outlook Maintained

What Happened ?

key details

Rating Rationale:

ICRA reaffirmed Bank of Maharashtra’s AA+ (Stable) rating after assessing the bank’s improving financial profile, stronger operating performance, prudent risk management and comfortable capital position. The rating agency believes these factors continue to support the bank’s ability to meet its long-term debt obligations while maintaining a stable credit profile. 

Key Rating Drivers:

• Sustained improvement in earnings supported by healthy loan book growth.
• Stable net interest margins despite a declining interest rate environment.
• Better operating efficiency leading to stronger profitability.
• Continued improvement in asset quality indicators.
• Comfortable capitalisation and solvency metrics.
• Majority ownership by the Government of India providing sovereign support.
• Strong CASA franchise resulting in a competitive cost of funds.

Asset Quality Improvement:

ICRA highlighted continued progress in the bank’s asset quality, supported by conservative provisioning and disciplined credit underwriting.

Key Developments

• Gross NPA ratio improved to 1.45%.
• Net NPA remained low at 0.13%.
• Vulnerable loan book reduced to 0.78% of standard advances.
• Provision Coverage Ratio strengthened to 90.90%.
• Continued upfront provisioning helped contain fresh stress.
• Contingency provisions remain available to absorb potential future credit shocks. 

Capital & Liquidity Position:

The rating agency considers the bank’s capital profile to be a major strength supporting future growth.

Capital Highlights

• CET-I ratio improved to 15.56%.
• Overall CRAR remained comfortable at 18.36%.
• Internal capital generation continues to support business expansion.
• The bank intends to raise additional equity, further strengthening capital buffers.
• Transition to the Expected Credit Loss (ECL) framework is expected to have a limited impact on capital because provisions have already begun to be created.

Liquidity Highlights

• Liquidity Coverage Ratio (LCR): 117.87%, well above the regulatory minimum.
• Excess Statutory Liquidity Ratio (SLR) investments of approximately ₹29,770 crore provide additional liquidity comfort.
• Despite rising credit growth, the bank continues to maintain a stable funding profile. 

Business Strengths:

ICRA identified several structural strengths supporting Bank of Maharashtra’s long-term credit profile.

Funding Franchise

• CASA deposits account for 48.44% of total deposits.
• Cost of funds remains below the average for public sector banks.
• Extensive branch network of 2,815 branches, with around 41% located in Maharashtra.
• Established retail banking franchise supports stable deposit mobilisation. 

Profitability

The rating agency noted continued improvement in profitability driven by:

• Healthy credit growth.
• Stable lending yields.
• Lower credit costs.
• Better operating efficiency.
• Strong internal capital generation.

These factors have enabled the bank to maintain improving returns while strengthening its balance sheet. 

Sovereign Support:

Government ownership continues to remain a key rating strength.

Key Highlights

• Government of India holds 73.60% equity in the bank.
• ICRA expects continued sovereign support if additional capital is required.
• The bank has historically received capital support from the Government during periods of stress.
• Majority government ownership enhances overall credit confidence for long-term investors. 

Note:

• While the rating reaffirmation does not introduce any operational changes, it reflects ICRA’s confidence in Bank of Maharashtra’s improving financial strength, disciplined asset quality management and healthy capital position.
• The reaffirmed AA+ (Stable) rating also strengthens the bank’s ability to access debt markets for future Basel III Tier II and Infrastructure Bond issuances at competitive funding costs. 

Risk Analysis

Summary:

• ICRA believes Bank of Maharashtra’s credit profile remains strong, supported by healthy profitability, improving asset quality, comfortable capitalisation and majority Government ownership. However, the bank’s ability to sustain these strengths will depend on maintaining credit quality amid rapid loan growth, managing the transition to the Expected Credit Loss (ECL) framework and navigating external macroeconomic uncertainties. 

Key Risks:

• Rapid credit growth could lead to higher loan seasoning risk and future slippages.
• Ongoing geopolitical tensions in West Asia may affect borrower repayment capacity and overall asset quality.
• Higher exposure to certain state government-owned entities with relatively weaker credit profiles remains a monitorable factor.
• Transition to the Expected Credit Loss (ECL) framework is expected to require additional provisioning of around ₹2,500 crore, although the bank has already created ₹255 crore towards this requirement.
• Rising credit-to-deposit ratio could increase funding pressure if deposit mobilisation slows.
• Continued pressure on deposit costs may affect margins if competition for deposits remains elevated. 

Worst Case:

• If asset quality deteriorates because of higher slippages, geopolitical disruptions or weaker borrower repayment behaviour, credit costs could rise and reduce profitability. According to ICRA, a material increase in Net NPAs or weakening capital buffers could result in a reassessment of the bank’s credit rating. 

Risk Level: Low

Company Commentary

• The reaffirmed AA+ (Stable) rating reflects sustained improvement in the bank’s earnings profile and operating efficiency.
• Healthy loan growth, stable margins and lower credit costs continue to support profitability.
• Asset quality has strengthened through conservative provisioning and disciplined risk management.
• Comfortable capital adequacy and healthy internal capital generation provide sufficient capacity to support future business growth.
• The bank’s strong CASA franchise and lower cost of funds remain important competitive advantages.
• Majority ownership by the Government of India continues to provide significant credit support.
• The Stable Outlook reflects ICRA’s expectation that Bank of Maharashtra will maintain healthy profitability, stable asset quality and comfortable capitalisation over the medium term.