Ratings Facilities Basel III Compliant Tier II Bonds Amount 3,000 Lower Tier II Bonds 1,025 Upper Tier II Bonds 700 Perpetual Tier I Bonds 600 5,325 (Rupees Five Thousand Total Three Hundred and Twenty Five crore only) Details of instruments/facilities in Annexure-1 Oriental Bank of Commerce September 25, 2018 Rating 1 (Single A Plus; Outlook: (Single A Plus; Outlook: CARE A; (Single A; Outlook: CARE A; (Single A; Outlook: Rating Action CARE AA-; (Double A Minus; Outlook: CARE AA-; (Double A Minus; Outlook: (Single A Plus; Outlook: (Single A Plus; Outlook: Detailed Rationale & Key Rating Drivers The revision in the rating of Oriental Bank of Commerce takes into account net loss during FY18 and Q1FY19 due to higher credit provisioning requirements owing to pressure on the asset quality. Also, bank s operating profitability is under pressure due to de-growth in loan book in order to reduce the Risk Weighted Assets (RWA) and maintain capital ratios. On account of weak financial performance, OBC s capitalization ratios have weakened; while, OBC s capitalization ratios are higher than regulatory requirements (excluding capital conservation buffer), it remains lower than regulatory capital requirements (including CCB). Given the trend of losses and capital ratios of the bank being under stress (lower than the regulatory requirement including capital conservation buffer), the bank will continue to be dependent on capital support from the Government of India (GoI). The rating however continues to derive strength from the majority ownership by Government of India (GoI) and demonstrated strong support by GoI, long standing track record of operations of the bank and its resource base and liquidity profile. Going forward continued ownership and support from GoI and the bank s ability to improve its asset quality and profitability would be the key rating sensitivities. Outlook: The outlook on the rating is as bank s asset quality and capitalization levels remain under pressure due to inadequacy of the operating profitability to cover for the credit costs. The outlook may be revised to Stable if the deterioration in asset quality is arrested and the trend in losses is reversed or bank improves its capitalization profile significantly through fresh capital infusion from GoI or sale of non-core investments. Bank has requested for fresh equity capital infusion of Rs.5,300 crore from GoI for FY19 and is also looking to monetize some of its non-core investments. Detailed description of the key rating drivers Key Rating Strengths Majority ownership of GoI and long track record: OBC is a nationalized bank of significant size which has a long track record of operations of over 70 years with a pan India network. Government of India is the major shareholder in OBC and demonstrated strong support through regular capital infusion. In FY18, GoI had infused capital of Rs.3,571 crore in the bank taking the overall shareholding of GOI from 58.38% as on June-17 to 77.23% as on June-18. 1 Complete definition of the ratings assigned are available at www.careratings.com and other CARE publications 1 CARE Ratings Limited
Comfortable resources profile: OBC continues to enjoy healthy deposits profile on the back of its franchise and GoI ownership. OBC s deposits profile has improved in FY18-Q1, FY19 following de-growth in deposits and credit book and thereby bank focusing primarily on retail deposits and reducing dependence on bulk deposits. As on June-18, OBC had a deposit base of Rs.2,01,774 crore. OBC s CASA Deposits constituted 31.40% of the overall deposit base of the bank as on June-18 as against 29.46% as on June-17. Retail term deposits accounted for around 47.1% of total deposits as on Jun-18 as against 43.91% as on Jun-17. The bank has lowered its dependence on bulk deposits (> Rs.5 crore) by 24% y-o-y as on June 30, 2018 while retail deposits have grown by 1.2% as on Jun-18. Moderate liquidity profile: According to Structural Liquidity Statement as on March 31, 2018, the bank had negative cumulative mismatches in the buckets beyond 3 months. However, the bank had excess SLR securities of close to Rs.15,000 crore as of now, which are placed in ALM bucket based on maturity of securities however in case of need, these can be liquidated or borrowing can be raised against these; on strength of these ALM profile is expected to be comfortable. Liquidity coverage ratio of OBC stood at 100% as on March 31, 2018 (minimum requirement at 90%). The high renewal rate of bank s retail term deposits also support its liquidity profile. Key Rating Weaknesses Stressed asset quality parameters albeit resolutions expected as large number of NPAs are filed with NCLT: OBC s asset quality witnessed further deterioration during FY18, the total fresh NPA slippages remained elevated at Rs.12,429 crore during FY18 (Rs.12,222 crore during FY17). There were additional slippages of Rs.2831 crore during Q1FY19. The elevated NPA generation has resulted in deterioration in the asset quality parameters as witnessed by Gross NPA ratio of 17.89% as on June 30, 2018 as against Gross NPA ratio of 14.83% as on June-17. The Net NPA ratio deteriorated to 10.63% as on June 30, 2018 (9.56% as on June 30, 2017). Furthermore, the overall net stressed assets (NNPA + Standard Restructured Assets + Security Receipts + Net Non-Performing Investments) stood at approx. Rs.16,400 crore as on June-18 (nearly 170% of the Tangible Networth as on June-18). Additionally, there are loans of Rs.4,900 crore classified as SMA-2 as on Jun-18, which could lead to higher slippages in FY19 as well. Bank s provision cover ratio (including technical written off counts) was 64.59% as on June 30, 2018 as against 54.68% as on June-17. A large number of bank s gross NPAs are filed with NCLT and many of these are expected to be resolved in FY19. The extent of haircut required on these cases and adequacy of current provision cover will be critical for OBC s profitability going forward. Nonetheless, the management is trying to increase the share of retail loan book (18.66% share as on June-18) wherein lower delinquencies are seen) and higher rated accounts (BBB and above; the percentage of which has increased from 55% as on Mar-18 to 71% as on June-18) in its portfolio in order to address the issue of asset quality as well as capitalization (these assets being relatively lower risk weight assets). Weakness in capitalization profile despite the sizeable capital infusion from GoI in FY18: OBC has reported net loss of Rs. 5872 crore in FY18 and Rs.393 crore in Q1FY19 primarily on account of high credit provisioning. Although, the bank received fresh equity capital infusion of Rs.3,571 crore from GoI in FY18, the bank redeemed its Basel III Tier 1 Bonds aggregating Rs.3,000 crore, upon the exercise of the regulatory event call option. As a result of sizeable net loss and redemption of Additional Tier-I Bonds, OBC s CAR, Tier-I CAR and Common Equity Tier I (CET 1) capital ratio stood at 10.25%, 7.28% and 7.13% as on June-18 vs. regulatory minimum requirement of 10.875%, 8.875% and 7.375%. (including CCB). Nevertheless, OBC s capital ratios are above the regulatory minimum requirement excluding CCB (Excluding CCB regulatory requirement being at 9%, 7% and 5.5% for CRAR, Tier 1 and CET 1 capital respectively.) The Bank is looking to raise total capital of Rs.6,000 crore including Rs.5,300 crore requested from the GoI in FY19. Thus, the bank would be dependent on timely infusion of capital from GOI for maintaining its capitalization levels. The bank is also looking to divest some of its non-core investments. Deterioration in earnings profile: OBC is one of the 11 PSBs which are under PCA framework of RBI as of now (Classified as PCA-2). As a result, the bank s net advances declined by 13.53% in FY18 to Rs.1,36,368 crore as on Mar-18 from Rs.1,57,706 crore as on Mar-17 and further to Rs.1,34,297 crore as on Jun-18. Consequently, OBC, registered a decline in net interest income by 8.12% y-o-y to Rs.4,511 from Rs.4,909 crore whereas non-interest income remained at similar levels as previous year with 0.61% growth to Rs.2,782 crores during FY18. NIM declined to 1.87% during FY18 as against 2% in FY17. Profitability has also been impacted on account of high Gross NPAs. The bank reported pre-provisioning profit of Rs.3703 crores in FY18 declining by 11.20% from Rs.4170 crore during FY17. 2 CARE Ratings Limited
Decline in operating profitability coupled with significant increase of 72% in provisioning to Rs.9798 crores in FY18 from Rs.5,693 crore during FY17 resulted in the bank reporting net loss of Rs.5,872 crores in FY18 from Rs.1,094 crore during FY17. During Q1FY19, bank reported net loss of Rs.393 crore in Q1FY19. The profitability of the bank is expected to remain under pressure during FY19 on account of incremental provisioning requirement on NPAs as well as pressure on operating profitability following de-growth in loan book. The extent of additional provisioning required on cases resolved under NCLT will also be critical for OBC s profitability. The bank is also looking to sell non-core investments, profit on these, if sold, could also reduce some pressure on bank s profitability profile in FY19. Analytical approach: Standalone Applicable Criteria Criteria on assigning Outlook to Credit Ratings Rating Methodology: Factoring Linkages in Ratings CARE s Policy on Default Recognition Bank - CARE s Rating Methodology For Banks Financial Sector Financial Ratios About the Company OBC was established in Lahore on February 19, 1943, by Late Rai Bahadur Lala Sohan Lal, the first Chairman of the Bank. The registered office of the Bank was shifted to Delhi in 1950. The Bank was nationalized on April 15, 1980 and became a public sector bank. The majority stakeholder of OBC is Government of India (GoI), which held 77.23% stake in the bank as on June 30, 2018. As on June 30, 2018, the Bank is operating through a network of 2,389 branches across India. Brief Financials FY17(A) FY18(A) Total operating income 21,188 20,181 PAT -1,094-5,872 Gross Advances 166,438 148,206 ROTA (%)* -ve -ve NIM (%)* 2.00 1.87 Net NPA (%) 8.96 10.47 CAR (%) 11.64 10.50 A: Audited *Note: Ratios computed based on average of annual opening and closing balances Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History for last three years: Please refer Annexure-2 Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to care@careratings.com for any clarifications. Analyst Contact: Name: Mr. Puneet Maheshwari Tel: 011-45333251 Mobile: 9871799127 Email: p.maheshwari@careratings.com **For detailed Rationale Report and subscription information, please contact us at www.careratings.com About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two decades, it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of 3 CARE Ratings Limited
its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. Annexure-1: Details of Instruments/Facilities Name of the Instrument ISIN Date of Issuance Coupon Rate Maturity Date Size of the Issue Rating assigned along with Rating Outlook Bonds-Upper Tier II INE141A09090 12.02.2009 8.75% 12.02.2024 500.00 CARE A; Bonds-Perpetual Bonds INE141A09108 17.12.2009 9.10% Perpetual 300.00 CARE A; Bonds-Perpetual Bonds INE141A09116 17.09.2010 9.05% Perpetual 300.00 CARE A; Bonds-Upper Tier II INE141A09124 20.09.2010 8.68% 20.09.2025 200.00 CARE A; Bonds-Lower Tier II INE141A09132 30.11.2012 8.93% 30.11.2022 1025.00 Bonds-Tier II Bonds INE141A08019 27.10.2014 9.20% 27.10.2024 1000.00 Bonds-Tier II Bonds INE141A08035 26.10.2015 8.34% 26.10.2025 1000.00 Bonds-Tier II Bonds INE141A08043 24.06.2016 9.05% 24.06.2026 1000.00 4 CARE Ratings Limited
Annexure-2: Rating History of last three years Sr. No. Name of the Instrument/Bank Facilities Current Ratings Type Amount Rating Outstanding 2018-2019 Rating history 2017-2018 2016-2017 1. Bonds-Lower Tier II LT - - - - 1)Withdrawn 2. Bonds-Upper Tier II LT - - - - 1)Withdrawn 2015-2016 - 3. Bonds-Lower Tier II LT - - - 1)Withdrawn ; 4. Bonds-Upper Tier II LT 500.00 CARE A; 5. Bonds-Perpetual Bonds -; - LT - - - - 1)Withdrawn - - - 6. Bonds-Perpetual Bonds 7. Bonds-Perpetual Bonds LT 300.00 CARE A; LT 300.00 CARE A; -; - -; - - - 8. Bonds-Lower Tier II LT 300.00* CARE A+; -; -; ; 9. Bonds-Upper Tier II LT 200.00 CARE A; -; - - 10. Bonds-Lower Tier II LT 725.00* CARE A+; -; -; ; 5 CARE Ratings Limited
Sr. No. Name of the Instrument/Bank Facilities Type Current Ratings Amount Rating Outstanding 2018-2019 Rating history 2017-2018 2016-2017 2015-2016 11. Bonds-Tier II Bonds LT 1000.00 CARE A+; -; -; ; 12. Bonds-Tier I Bonds LT - - 1)Withdrawn 13. Bonds-Tier II Bonds LT 1000.00 CARE A+; 14. Bonds-Tier II Bonds LT 1000.00 CARE A+; -; -; 1)CARE A (Under Credit watch with Developing Implications) (06-Feb-18) 2)CARE A; -; -; 2)CARE A+ (30-Sep-16) 3)CARE A+ ; ; 3)CARE AA (23-Jun-16) 1)CARE A+ - - 15. Bonds-Tier I Bonds LT - - 1)Withdrawn *Instrument of Rs.1025 crore outstanding against the rated facilities 1)CARE A (Under Credit watch with Developing Implications) (06-Feb-18) 2)CARE A; - - 6 CARE Ratings Limited
CONTACT Head Office Mumbai Ms. Meenal Sikchi Mr. Ankur Sachdeva Cell: + 91 98190 09839 Cell: + 91 98196 98985 E-mail: meenal.sikchi@careratings.com E-mail: ankur.sachdeva@careratings.com Ms. Rashmi Narvankar Mr. Saikat Roy Cell: + 91 99675 70636 Cell: + 91 98209 98779 E-mail: rashmi.narvankar@careratings.com E-mail: saikat.roy@careratings.com CARE Ratings Limited (Formerly known as Credit Analysis & Research Ltd.) Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai - 400 022 Tel: +91-22-6754 3456 Fax: +91-22-6754 3457 E-mail: care@careratings.com AHMEDABAD Mr. Deepak Prajapati 32, Titanium, Prahaladnagar Corporate Road, Satellite, Ahmedabad - 380 015 Cell: +91-9099028864 Tel: +91-79-4026 5656 E-mail: deepak.prajapati@careratings.com BENGALURU Mr. V Pradeep Kumar Unit No. 1101-1102, 11th Floor, Prestige Meridian II, No. 30, M.G. Road, Bangalore - 560 001. Cell: +91 98407 54521 Tel: +91-80-4115 0445, 4165 4529 Email: pradeep.kumar@careratings.com CHANDIGARH Mr. Anand Jha SCF No. 54-55, First Floor, Phase 11, Sector 65, Mohali - 160062 Chandigarh Cell: +91 85111-53511/99251-42264 Tel: +91-0172-490-4000/01 Email: anand.jha@careratings.com CHENNAI Mr. V Pradeep Kumar Unit No. O-509/C, Spencer Plaza, 5th Floor, No. 769, Anna Salai, Chennai - 600 002. Cell: +91 98407 54521 Tel: +91-44-2849 7812 / 0811 Email: pradeep.kumar@careratings.com COIMBATORE Mr. V Pradeep Kumar T-3, 3rd Floor, Manchester Square Puliakulam Road, Coimbatore - 641 037. Tel: +91-422-4332399 / 4502399 Email: pradeep.kumar@careratings.com JAIPUR Mr. Nikhil Soni 304, Pashupati Akshat Heights, Plot No. D-91, Madho Singh Road, Near Collectorate Circle, Bani Park, Jaipur - 302 016. Cell: +91 95490 33222 Tel: +91-141-402 0213 / 14 E-mail: nikhil.soni@careratings.com KOLKATA Ms. Priti Agarwal 3rd Floor, Prasad Chambers, (Shagun Mall Bldg.) 10A, Shakespeare Sarani, Kolkata - 700 071. Cell: +91-98319 67110 Tel: +91-33- 4018 1600 E-mail: priti.agarwal@careratings.com NEW DELHI Ms. Swati Agrawal 13th Floor, E-1 Block, Videocon Tower, Jhandewalan Extension, New Delhi - 110 055. Cell: +91-98117 45677 Tel: +91-11-4533 3200 E-mail: swati.agrawal@careratings.com PUNE Mr.Pratim Banerjee 9th Floor, Pride Kumar Senate, Plot No. 970, Bhamburda, Senapati Bapat Road, Shivaji Nagar, Pune - 411 015. Cell: +91-98361 07331 Tel: +91-20- 4000 9000 E-mail: pratim.banerjee@careratings.com CIN - L67190MH1993PLC071691 HYDERABAD Mr. Ramesh Bob 401, Ashoka Scintilla, 3-6-502, Himayat Nagar, Hyderabad - 500 029. Cell : + 91 90520 00521 Tel: +91-40-4010 2030 E-mail: ramesh.bob@careratings.com 7 CARE Ratings Limited