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Issuer Credit Research

Issuer Flash: Bank of India

Issuer: Bank Of India | Document: Issuer Flash | Date: 2026-10-27 | Event: Q2 Fy2027 Results

Report date: 2026-10-27 Event date: 2026-10-23 Event title: Q2 FY2027 Results

1. Flash Conclusion

Bank of India's Q2 FY2027 results support the latest issuer summary's view of an improved state-owned commercial bank with government support expectations. Lower problem-loan stocks and deposit growth exceeding loan growth benefit senior credit. The sequential picture is nevertheless more mixed than in Q1: domestic CASA dilution, higher deposit costs, lower NIM and declining capital ratios qualify stronger reported profit. This is continued asset-quality repair, rather than evidence for a broad improvement in the credit view.

The bank earns primarily from lending and other banking activities funded by deposits. Its 73.38% Government of India ownership supports expectations of assistance, but does not guarantee every liability. CET1 of 15.49% provides a material loss-absorption buffer; its decline from 15.97% makes the balance between growth, earnings retention and capital management more important. The result supports the existing senior-credit assessment while leaving AT1 and Tier 2 risks to separate security-level analysis.

2. Profit Growth Requires an Earnings-Quality Qualification

The 23 October release covers the quarter and half-year ended 30 September 2026. The unaudited reviewed bank-standalone statements show quarterly net profit of INR 32.02bn, against INR 30.68bn in Q1 and INR 25.55bn a year earlier. Half-year profit reached INR 62.70bn. These are bank-standalone results, not the INR 33.09bn consolidated quarterly profit.

Net interest income increased sequentially to INR 70.07bn from INR 68.33bn, but operating profit edged up only to INR 50.89bn from INR 50.51bn. Recoveries on written-off accounts contributed INR 9.78bn to other income, compared with INR 6.09bn in Q1. The presentation reports an INR 10.10bn NPA provision charge, partly offset by INR 2.12bn of net reversals for standard assets and other items, leaving total non-tax provisions of about INR 7.98bn. These offsets are relevant to earnings quality; profit growth should not be extrapolated as an equivalent improvement in recurring capacity to absorb losses. Reported annualized ROA remained 1.01%.

3. Deposit Catch-Up Improves the Funding Balance, but Mix Weakens

The table uses bank-global balances and prudential metrics except domestic CASA. Amounts are INR tn unless otherwise indicated; quarter-end balances and quarterly profitability measures have different time bases.

Metric June 2026 / Q1 September 2026 / Q2
Global deposits 9.579 10.375
Global gross advances 7.978 8.551
Global credit-deposit ratio 83.28% 82.41%
Domestic CASA ratio 36.68% 34.16%
Global quarterly NIM 2.52% 2.47%
Gross NPA stock, INR bn / ratio 144.54 / 1.81% 136.48 / 1.60%
Net NPA ratio 0.51% 0.42%
CET1 / total capital adequacy 15.97% / 18.69% 15.49% / 17.78%

Deposits grew 8.31% quarter on quarter, ahead of gross advances at 7.18%, reversing the preceding quarter's concern about loans outpacing deposits. The lower credit-deposit ratio is constructive for funding flexibility. Both balances, however, include deposits and advances gathered under the RBI special FCNR scheme during Q2. Excluding those amounts, combined business grew 5.44% sequentially, against 7.80% including them. The headline expansion therefore cannot all be treated as a recurring strengthening of the underlying deposit franchise.

Domestic CASA increased in absolute terms to INR 3.070tn from INR 3.021tn, but term deposits grew faster and diluted the CASA ratio by 252bp. Global deposit cost rose to 4.85% from 4.69%, while NIM declined 5bp. These developments qualify the favourable volume trend: a bank can improve its loan-to-deposit balance while paying more for incremental funding. Stabilising the deposit mix and margin remains central to sustainable earnings and internal capital generation. Aggregate growth and the credit-deposit ratio do not establish foreign-currency liquidity adequacy.

4. Asset-Quality Repair Continues as Capital Ratios Ease

The NPA improvement is supported by absolute stocks, not just loan growth. Gross NPAs fell by approximately INR 8.05bn and net NPAs fell to INR 35.57bn from INR 40.19bn. Cash recoveries of INR 16.35bn exceeded INR 12.01bn of NPA additions, which comprise fresh slippages and debits in existing NPA accounts. Write-offs were INR 2.36bn, below INR 10.14bn in Q1. This combination is more reassuring than a ratio decline driven mainly by denominator expansion or accelerated write-offs.

Provision coverage increased to 94.45%, including technically written-off accounts; it is not coverage of the on-balance-sheet NPA stock alone. The presentation's reported quarterly slippage ratio was 0.15% and credit cost 0.12%, against 0.24% and 0.15% in Q1; these measures have not been annualized for cross-bank comparison. SMA exposures for loans of INR 5 crore and above fell to INR 25.53bn, or 0.30% of standard advances, from INR 40.97bn and 0.52%. That threshold matters: the SMA measure does not establish the delinquency performance of every small retail or MSME loan.

Continued RAM growth, with retail, agriculture and MSME accounting for 58.63% of domestic gross advances, leaves seasoning risk relevant. The aggregate improvement does not resolve product-vintage performance or digital-lending early arrears. Agriculture and MSME together accounted for roughly three-quarters of Q2 NPA additions, warranting continued scrutiny even as total additions declined.

CET1 declined 48bp sequentially and total capital adequacy 91bp. Risk-weighted assets reached INR 5.232tn, while the reviewed statements disclose INR 18bn of Tier 2 redemption during the quarter. Growth-related capital demand and redemption are relevant to interpreting the ratios, but the available comparison is not a complete attribution bridge. CET1 and total capital remain above the presentation's stated requirements including conservation buffers of 8% and 11.5%, respectively. The approved FY2027 plan for INR 25bn AT1 and INR 50bn Tier 2 issuance represents funding flexibility rather than capital already raised.

For senior creditors, lower NPAs and retained common equity remain important protections. For capital investors, issuer improvement does not remove instrument-specific non-viability, subordination, principal loss, coupon or call risks; their application depends on the instrument and its terms. No bond-specific valuation conclusion is drawn without current documents and market levels.

5. What To Watch Next

The May additional discussion's funding and growth questions receive a partial answer: deposits caught up with advances, the credit-deposit ratio fell, and aggregate NPA and threshold-defined SMA indicators improved. CASA and NIM weakened, however, and capital ratios declined. These aggregate quarterly indicators leave broader quality-of-growth questions unresolved, especially loan-vintage performance and currency-specific liquidity.

Next results should test whether deposit growth persists beyond special FCNR flows, whether CASA and NIM stabilise, and whether earnings remain resilient with less support from recoveries and provision reversals. Monitor NPA additions, recoveries, write-offs, agriculture/MSME migration, new RAM and digital vintages, RWA growth, CET1 retention and actual capital issuance. LCR, NSFR, currency-specific liquidity, current bond terms and live spreads remain unconfirmed in this review. These require direct source verification before a stronger liquidity or instrument-level investment conclusion. The research cutoff is 26 October 2026.

6. Sources