Moody’s Investors Service on Wednesday downgraded the baseline credit assessment of Bank of Baroda to reflect weakening in asset quality and risk from deteriorating operating environment in India.

Moody’s affirmed Bank of Baroda’s domestic and foreign bank long-term and short-term deposit ratings of Baa3, stable/P-3.

Moody’s has downgraded BoB’s Baseline Credit Assessment (BCA) to ‘ba3’ to reflect the weakening in asset quality and further downside risk from the deteriorating operating environment in India. BCAs are essentially an opinion on the likelihood of an issuer requiring extraordinary support to avoid a default on its debt obligations.

“Further deterioration in asset quality poses risks to BoB’s profitability and capital,” Moody’s said, adding the asset quality in micro, small and medium enterprises and agriculture portfolio, which has deteriorated, will continue to weaken further.

Another risk factor is BoB’s exposure to non-bank financial institutions (NBFIs), which at 16 per cent of its loan book is the highest among Moody’s-rated banks in India.

“If the downside risks on asset quality materialize, resulting in higher credit costs and lower internal capital generation, the pace of improvement in profitability and capital will be negatively impacted,” it added.

Moody’s further said it has affirmed the deposits and senior unsecured ratings of BoB with a stable outlook. Moody’s expects that the bank will receive a very high level of systemic support, leading to a widening of systemic support uplift to three notches, from two previously.

Bank of Baroda had total assets of Rs 11.4 lakh crore at December 31, 2019.

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