Fitch revises outlook on Bank of Baroda's IDR

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Fitch revises outlook on Bank of Baroda's IDR

The outlook is stable and Bank of Baroda's Bank of Baroda and its subsidiary New Zealand Ltd's long-term issuer default ratings IDRs are at ''BBB.

There is a high likelihood that the Government of India will support the bank in times of need, as a result of the rating action on the lender. BoB's large market position with over six per cent market share in sector assets and deposits and 64 per cent state ownership is what is the reason for the expectation of support. BoB plays a quasi-policy role through social lending.

Fitch has also revised the outlook to positive after reassessed the earnings and profitability score at b' from b-. The agency expects the four-year average operating profit risk-weighted assets RWA ratio to be current: 0.6 per cent to approach the bb'' threshold of 1.25 per cent in the foreseeable future. It said that the declining loan-impairment charges and higher income generation are mainly to blame for the negative impact on treasury income due to rising interest rates.

Fitch said that BOB is expected to resume its growth appetite in the corporate and SME space after a number of years of tepid growth, which will test recent enhancements to its risk underwriting and controls. Its appetite for retail loans to remain higher, although loans are mainly from secured asset classes, such as housing loans.

Fitch believes that India's potential will be seven per cent in the medium term. India's large and diversified economy, high domestic consumption growth and reasonable insulation from external risks are supported by the relatively stable operating environment OE despite some near-term inflationary pressures.

BOB has a strong local franchise that should continue to support business generation, even though capital constraints due to aggressive lending by peers have resulted in loss of market share in recent years. The government influence can affect its traditional business model loans, which have 63 per cent of assets but even more so its risk appetite, similar to other states, which we believe its risk appetite was previously higher, in less-benign OE conditions, which has exacerbated the negative impact on key financial metrics it added.