Moody's Affirms Baa3 Deposit Rating Of SBI

Moody's Ratings has affirmed the Baa3 long-term local and foreign currency bank deposit ratings of the State Bank of India, which is the country's largest state-run lender.

"SBI's deposit ratings are on par with the Government of India's Baa3 sovereign rating," the ratings agency said in a note dated Oct. 2.

Moody's has also affirmed SBI's baseline credit assessment and adjusted BCA to "ba1." The outlook on SBI’s ratings remains stable, it added.

The bank benefits from financial flexibility "because of its ability to raise capital by selling stakes in its listed subsidiaries if required." Funding and liquidity are SBI's key credit strengths, supported by its dominant domestic franchise and strong government links, the note stated.

An upgrade of SBI's deposit ratings is unlikely as they are at the same level as the sovereign rating, Moody's said. SBI's BCA could be upgraded if there is an improvement in its core equity capital, with asset quality and profitability remaining at current levels, it added.

"We could downgrade SBI's ratings if India's sovereign rating is downgraded, reflecting the strong links between the bank's credit profile and that of the government. The bank's BCA could be downgraded if there is a significant deterioration in its asset quality, as reflected in a sustained increase in nonperforming loans," the ratings agency said.

Moody's note highlighted that SBI's asset quality has "improved over the years" and is expected to remain "broadly stable" as economic momentum remains healthy in India.

"The corporate sector is in a healthy state, with good profitability and de-leveraged balance sheets. Growth in secured retail loans, such as housing and vehicle loans, is backed by real demand, satisfactory employment conditions and adequate asset collateral," Moody's said.

The ratings agency expects SBI's profitability to remain in line with the level in the last year, with a return on assets of around 1%. "We assign a baa3 profitability score to SBI."

Shares of SBI closed 0.36% lower at Rs 794.1 apiece on the NSE, compared to a 2.12% decline in the benchmark Nifty 50.