Fitch upgrades CBI's individual rating to 'D'

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Fitch Ratings has today upgraded Central Bank of India's (CBI) Individual rating to 'D' from 'D/E'. At the same, the agency affirmed the Support rating of '3'.

The upgrade of CBI's Individual rating reflects the significant improvement in the bank's reported asset quality and solvency indicators over the past three years. The agency, however, notes that the financials remain below the median for government banks in India.

Though CBI's net interest margin in FY06 compares well with other banks on account of the higher proportion of low cost deposits, profitability indicators as measured by RoA and RoE have generally been below the system median on account of higher cost-income ratio and consistently higher provisions. While net income declined in FY06 due to lower securities trading income and increased provisions for diminution in investments, the agency expects the bank's operating performance to improve in FY07 due to de-risking of the investments portfolio and thus lower investment provisions.

Over the last three years, sustained emphasis on recoveries of non-performing loans ("NPLs") has resulted in a 17% decline in CBI's absolute NPLs leading to significant improvement in its reported asset quality ratios. The decline was also aided by profits from trading in government securities which were used to increase the loan loss reserves. However, the reported gross NPL ratio and net NPLs to equity remain weaker than the system median.

Regulatory capital adequacy ratio declined in FY06 due to loan growth and increased regulatory capital charge on market risk. CBI plans to issue subordinated debt and raise equity though an initial public offering in FY07 to prepare for the capital charge on operational risk under Basel II.

Wholly-owned by the government, CBI's network of 3,123 branches is the third-largest among banks in India. CBI's main business is providing working capital to corporates and public sector enterprises but in recent times, it has increased its focus on retail banking business (10.4% of advances), especially housing loans.

Sourced From: Fitch Ratings