Standard & Poor’s on Wednesday revised downward the standalone credit profile (SACP) of State Bank of India and Union Bank of India in anticipation of weak asset quality of these two public sector banks.
The SACP of India’s largest bank has been lowered to 'BBB-' from 'BBB’ and that of Union Bank of India from 'BB+' to 'BBB-'.
However, S&P affirmed its ‘BBB-’ long-term and ‘A-3’ short-term issuer credit ratings on seven public sector banks, including SBI and Union Bank. The ‘BBB-’ issuer credit rating on all these banks reflects S&P’s expectation of extraordinary support from the Government.
The agency cautioned that the ratings on these banks would be lowered if the sovereign rating is downgraded. The outlook on the long-term ratings of these banks is negative.
“We expect these banks’ asset quality to remain weak and credit costs to stay high. We have revised our risk position assessment on the two banks to ‘moderate’ from ‘adequate’, said S&P in a statement.
S&P said it expects SBI and Union Bank’s asset quality to remain stressed in the financial year 2013 and 2014 partly due to continued slippages in their restructured loan books.
High NPA
SBI’s gross non-performing assets (NPA) ratio of 5 per cent (on a standalone basis) as of June 30, 2012, is the highest among the Indian banks that S&P rates. On a standalone basis, the bank’s mid-corporate NPAs (9.3 per cent) and agriculture NPAs (9.8 per cent) are the “particularly stressed” portfolios, the rating agency said. According to S&P, Union Bank’s NPAs in agriculture have surged. Moreover, the bank has asset concentration in its infrastructure portfolio, especially in the power sector, which is facing challenges, such as fuel shortages, delays in securing environmental clearances, and a slow pace of tariff reforms.
The agency expects the asset quality of five other banks — Indian Bank, Bank of India, IDBI Bank, Indian Overseas Bank, and Syndicate Bank — to come under some stress. However, the SACP assessment of the five banks is unchanged.