The Hindu Business Line : `Earnings strong enough to absorb BCCI fines' — Moody's affirms stable ratings on Bank of India

MOODY'S Investors Service has affirmed the Ba2 long-term and not Prime short-term foreign currency deposit ratings of Bank of India (BoI) as well as the bank's D financial strength rating (FSR). The outlook on all ratings remains stable.

Moody's has said that rating action follows a London court ruling ordering the bank to pay $82 million in total compensation to the liquidators of Bank of Credit and Commerce International (BCCI). The ruling is in connection with a number of transactions between BoI's London branch and BCCI during the period 1981-1985.

BoI's relatively strong recurring earnings allow the bank to absorb such a loss comfortably in the current financial year without any impact on its capital base. The possible compensation to be paid amounts to around 24 per cent of the bank's 9-month operating income of the fiscal 2003-04 and 9 per cent of its equity base, Moody's has observed.

Although the current year's bottom-line result would be likely to be impacted negatively if the bank were to fully provision the $82 million, BoI's balance sheet strength and recurring earning power are unlikely to be adversely affected by such a provisioning.

The bank has said that it expects its capital adequacy ratio to be maintained above 12 per cent by the end of March 2004 even in the event of fully providing for this amount, Moody's added. Consequently, such an event does not warrant a change in the banks' ratings nor it outlooks, Moody's has said.

Meanwhile, Bank of India has gone in for a Rs 200-crore tier-II bonds issue in order to further enhance its capital base.

The tenor of the bonds is 121 months and the coupon is at 5.90 per cent on an annualised basis, said a senior BoI official.