BHARAT OVERSEAS BANK LIMITED

RATING HISTORY Rated Amount Maturity Rating Previous Instrument Amount Outstanding Date Outstanding Ratings April 2005 Certificate of Deposit Rs. 2 billion To be placed A1+ Nil

ICRA has assigned an A1+ bank with a branch in Thailand, aggressive rate structure for (pronounced A one ) rating to the BhOB enjoys substantial remittances mobilising deposits. Rs.2 billion Certificate of Deposit from the ethnic Indian community in programme of Bharat Overseas Bank Bangkok. Nearly a quarter of BhOB’s To keep pace with the growth in Limited (BhOB). This is the highest- domestic deposits as on March 31, credit, BhOB has put in place credit-quality rating assigned by ICRA 2005, were sourced from non- adequate risk management systems to short-term debt instruments. resident Indians in Bangkok for to control NPA slippages. Credit Instruments rated in this category deployment in its Indian operations. monitoring systems seem satisfactory carry the lowest credit risk in the with special emphasis on monitoring short term. BhOB’s ratings take into Thus, in what is uncommon for a of standard assets and active top account the deposit cost advantage it bank of its size, BhOB has been able management involvement in recovery enjoys through a substantial to lend at competitive rates to some management. Notwithstanding the proportion of non-resident deposits, prime corporate customers, by growth in credit, gross NPA levels its adequate capitalisation and the leveraging on this deposit-cost have shown consistent improvement systemic controls put in place to advantage. However, in order to in absolute terms (brought down from proactively monitor credit risk, balance overall yields, the bank has Rs.805 million as on March 31, 2003, resulting in the improved NPA levels restricted the total of such large to Rs. 578mn as on March 31, 2005), over the recent few years. The corporate exposures to about a fifth not only through a decline in NPA ratings also draw comfort from the of its gross domestic credit. The generation rates but also through higher-than-required SLR (Statutory bank’s credit focus continues to be on improved cash recovery. As on Liquidity Ratio) investments SMEs, where it already has a March 31, 2005, gross NPA% was maintained by the bank to support its sizeable exposure to textile, 3.43%, down by half from 6.74% as short-term liquidity position. BhOB’s engineering, chemicals and gems & on March 31, 2003. With a 56% asset and deposit base are as yet jewellery firms. BhoB has also provisioning cover, net NPAs stood at small. As larger banks increase their ventured into retail lending over the 1.55%, and solvency remains focus on small and medium past two years, mainly through loans adequate with Net NPAs/Networth at enterprises (SMEs)---a segment against deposits, housing and 12.91% as on March 31, 2005. BhOB has traditionally been strong personal loans. BhOB’s small size has facilitated a in---its ability to maintain its deposit personalised approach to credit risk cost advantage as it grows, would be The increased focus on retail credit, management thus far; however, as key to its competitiveness. alongwith an increase in the bank grows in size, its credit disbursements in its core SME monitoring systems may need further BHOB, like most private banks, relies segment has helped BhOB achieve a strengthening. significantly on term deposits (71% of strong credit growth of 22% CAGR1 total deposits), even as it has been over the past three years. However, The bank’s investment portfolio is working towards improving the ICRA notes that this growth has been fairly liquid, with over 78% invested in proportion of its savings deposits on a small base—the bank’s credit government and other approved (19% of total deposits). Despite the portfolio of Rs.16.5 billion as on securities. With interest rates rising higher costs normally associated with March 31, 2005, is smaller than most over the past year, BhOB has term deposits, BhOB’s overall cost of other South-based private sector incurred a securities radingt loss of deposits is comparable to that of banks—and sustaining credit growth Rs.55 million in 2004-05 compared to larger nationalised banks due to a at similar levels may require a more a profit of Rs. 139 million in 2003-04. significantly large proportion of low Consequently, even though Net cost non resident deposits sourced Interest margin (NIM) has improved from Bangkok. As the only Indian to 3.48% during 2004-05 from 2.66%

in 2002-03, operating profitability has asset-liability mismatch over the that time disallowed banks with fallen to 1.80% in 2004-05 from short-term. However, the expected foreign government ownership from 2.17% in 2002-03. Net profitability at higher rates of deposit renewal, and operating in that country. IOB 0.66% for 2004-05 was also impacted consistently higher-than-required remains the largest shareholder by mark-to-market losses of level of SLR securities maintained by today with a 30% stake. Rs.201mn during 2004-05 (including the bank (approx. Rs.855 million Headquartered in , BhOB a Rs.118mn depreciation on account during March 2005) are a source of has a network of 91 mostly-urban of transfer of securities from the comfort. branches in India, with 35 branches Available For Sale (AFS) to Held to located in Tamil Nadu and the rest Maturity (HTM) category). Going Company Profile widely dispersed throughout India. forward, BhOB’s profitability could be Bharat Overses Bank Limited is a Internationally, the bank has impacted adversely by a further continued to operate its lone branch small private sector bank, promoted depreciation in the valuation of its by (IOB) and at Bangkok. The bank’s total assets remaining AFS portfolio should six other private sector banks - Bank stood at Rs.32.1billion as on March interest rates continue to rise, of Rajasthan, Vysya Bank, Federal 31, 2005, accounting for less than a although there is some cushion quarter of one percent of total Bank, , South available because of the higher-than- , . The banking system assets in India. required level of investment bank was established in 1973 to take fluctuation reserves set apart by the over the business of the then bank. Bangkok branch of Indian Overseas May 2005 Bank. A Government of Thailand BhOB’s liquidity profile is regulation which came into force at characterised by an unfavourable

1 CAGR - Compounded Annual Growth Rate

KEY FINANCIALS 31-Mar-05 31-Mar-04 31-Mar-03 Total Assets 32.1 28.2 24.4 Deposits 27.5 24.7 21.5 Advances 16.5 13.9 11.5 Equity Capital 0.2 0.2 0.2 Net Worth 2.0 1.7 1.4 Total Income 2.4 2.3 2.1 Net Profit 0.2 0.4 0.3 Interest Spreads / Avg. Assets (%) 3.48% 3.25% 2.66% Non-interest Income / Avg. Assets (%) 0.64% 1.20% 1.58% Operating Expenses / Avg. Assets (%) 2.32% 2.29% 2.07% Operating Profit / Avg. Assets (%) 1.80% 2.16% 2.17% Profit after tax / Avg. Assets (%) 0.66% 1.33% 1.25% Gross Non Performaing Assets (NPA) / Gross 3.43% 4.98% 6.74% Advances (%) Net Non Performing Assets (NPA) / Net 1.55% 2.26% 3.30% Advances (%) Capital / Risk Assets (%) 14.95% 16.25% 13.87% Total Deposits / Total Liabilities (%) 85.53% 87.74% 88.07% Advances / Deposits (%) 60.07% 56.30% 53.65% Savings Deposits / Total Deposits (%) 19.39% 17.05% 14.71% Term Deposits / Total Deposits (%) 71.40% 74.67% 78.15% Note: Amounts in Rs. Million

For further details please contact: Mr. L. Shivakumar, ICRA Chennai (Tel. No. +91-44-2433 3293-94)

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