Shares of Indian Overseas Bank (IOB) climbed over 12 per cent in Friday's trade after the bank said CARE Ratings has assigned fresh rating of CARE A1 + (A One Plus) to the bank's proposed certificate of deposits of Rs 10,000 crore. It maintained its ratings for IOB's two Tier II bond facilities, with outlook stable.
The stock climbed 15.36 per cent to hit a high of Rs 31.09 on BSE.
CARE Ratings said the ratings it assigned to the debt instruments of IOB continues to factor-in the majority ownership of government and its demonstrated funding support. It factors-in the long track record of the bank's operations with strong presence in south India, comfortable capitalisation levels, diversified advances book and deposit base with comfortable current account savings account (CASA).
The rating, it said, is constrained by moderate asset quality despite improvement seen over the past few years, with improvement in gross non-performing assets (GNPA) and gross stressed asset position.
"Although the bank’s earnings profile has seen considerable improvement in the last two years ended March 31, 2023, as against the earlier years, the level of profitability continues to be moderate," Care Ratings noted.
CARE noted that IOB's top 20 individual borrowers constituted about 141 per cent of the net worth and 18.82 per cent of the gross advances. Notably, most of the top borrowers were government-owned entities and highly-rated corporate accounts, it said.
To recall, IOB was placed under prompt corrective action (PCA) in October 2015, considering the high net NPAs and losses reported in FY15. After the bank was placed into the PCA framework, it has been continuously raising equity, mainly from the government, to bring back capital adequacy levels above the regulatory requirement.
In September 2021, the bank was moved out of the PCA framework.
"During Q1FY24, IOB reported a profit after tax (PAT) of Rs 500 crore on a total income of Rs 6,227 crore as against a PAT of Rs 392 crore on a total income of Rs 5,028 crore during Q1FY23. CARE Ratings expects the bank to remain profitable in the medium term, with credit costs remaining moderate in line with the industry," it said.
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