Moody’s downgrades SBI’s debt rating

Global rating agency Moody’s on September 23 cut down the senior unsecured debt and local currency deposit rating of State Bank of India to ‘˜negative’ from ‘˜stable’.

Global rating agency Moody’s on September 23 cut down the senior unsecured debt and local currency deposit rating of India’s largest lender, State Bank of India to ‘negative’ from ‘stable’, in view of asset quality and recapitalisation fears.

Moody’s said in a statement “A combination of increasing pressure on credit fundamentals and ongoing reliance on fiscally constrained government to maintain capital at levels desired by regulators argue for appropriateness of supported debt and deposit ratings at a level no higher than the sovereign.”

Moody’s cut down SBI’s unsecured debt rating on proportion with the autonomous foreign currency bond rating.

Detailing the grounds behind the action, Moody’s said the ongoing obscurity on the economic front will lead to the asset quality, with its loan impaired ratio already touching 8.6 percent, with a heavy rise in the June quarter.

The statement said there may be a seasonal factor to this rise, the spike in Non-Performing Loans shows that the bank’s asset quality is under stress.

On the recapitalisation aspect, Moody’s said SBI will have to race with other state-run banks for its share in the Rs. 14,000 crore earmarked in the budget.

Moody’s added “The high loan growth of up to 20 percent unlike the earlier 15 percent, mounting asset quality dilemma and lower margins designates that the bank’s capital levels will turn down without external injection and SBI will need an infusion this fiscal.”

Simultaneously, ratings agency Fitch demoted some ratings for state-owned Indian Bank, Punjab National Bank and Bank of Baroda on prospects of an additional worsening in asset quality and a sharp downtrend on economic growth.

State-owned banks have seen a climb in strained assets. Bad loans at the 10 major banks rose 36 percent in financial year 2013. In contrast, non-performing loans at India’s three biggest private sector banks ascended by 8 percent in the period.

The rating affected the shares of SBI, which went down by 1.39 percent at 1632.35 rupees each in early morning trade on Tuesday. Shares of Indian Bank was down by 1.16 percent, Bank of Baroda and Punjab National Bank were slightly down.

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