Indian Overseas Bank Initial Credit Rating Assigned by S&P Global Ratings as ‘BBB/Stable/A-2’

Indian Overseas Bank (IOB) has been assigned a fresh credit rating by M/s S&P Global Ratings Singapore Pte. Ltd. The Issuer Credit Rating (ICR) is ‘BBB/Stable/A-2’, supported by the expectation of very high government support. The Standalone Credit Profile (SACP) is set at ‘bbb-‘. The stable outlook reflects confidence in maintaining solid capital and funding profiles over the next two years, despite near-term loan concentration risks.

IOB Receives Initial ‘BBB/A-2’ Rating from S&P

Indian Overseas Bank (IOB) announced on February 27, 2026, that S&P Global Ratings Singapore Pte. Ltd. has assigned the bank an initial Issuer Credit Rating (ICR) of ‘BBB’ for the long term and ‘A-2’ for the short term. Correspondingly, the Standalone Credit Profile (SACP) has been assigned as ‘bbb-‘.

The rating action is based on the expectation of very high likelihood of extraordinary support from the Government of India if required, placing the long-term rating one notch above the bank’s SACP.

Rationale Driving the Rating

The ratings are underpinned by IOB’s crucial role as a public sector bank in promoting financial inclusion, alongside its very strong links with the government through majority ownership.

Capitalization and Earnings

• The bank is expected to maintain a stable Risk-Adjusted Capital (RAC) ratio between 10.0%–10.5% over the next two years. As of March 31, 2025, the RAC ratio stood at 10.2%.
• IOB is anticipated to dilute government ownership to 75% from 92.4% (as of December 2025) to comply with public float requirements.
• The bank has board approval to raise an additional INR 40 billion in capital through Qualified Institutional Placements before the end of fiscal 2026.
• Projected Return on Assets (ROA) is around 1% starting fiscal 2027.

Asset Quality and Concentration

IOB’s loan book remains concentrated, with Tamil Nadu accounting for about 36% of total loans as of end-December 2025. Furthermore, the agriculture sector exposure is 32% of total loans.

• Credit losses are anticipated to climb to 0.6%–0.8% of customer loans over the next two years, up from 0.57% in the first nine months of fiscal 2026.
• The bank historically showed higher loss rates (average of 2.5% from FY2019-FY2025) compared to the industry average (1.7%). However, slippage ratio has improved significantly to an annualized 0.5% in the first nine months of fiscal 2026.

Funding and Liquidity Profile

IOB benefits from a strong funding base driven by retail deposits. Current Account Savings Account (CASA) represented about 42% of customer deposits as of end-December 2025.

• The bank maintained a strong stable funding ratio of approximately 134% on average over the past five years.
• The loan-to-deposit ratio was 84% as of end-December 2025, and is expected to rise to 85%–90% as loan growth outpaces deposit growth.

Outlook and Rating Sensitivity

Outlook: Stable

The stable outlook on the long-term rating reflects the expectation that IOB will successfully raise planned capital and sustain its strong capital, funding, and liquidity profile over the next two years, supported by high likelihood of government backing.

Potential Downside Triggers

A downgrade could occur if:

• The bank’s RAC ratio falls sustainably below 10%, potentially due to failure to raise planned capital.
• The funding profile deteriorates via a sustained drop in low-cost deposits or a loan-to-deposit ratio deterioration relative to rated peers.

Rating Component Scores Summary

The following table summarizes the core components leading to the final rating:

Source: BSE