>State Bank of India ’s baseline credit assessment has been lowered a notch by credit rating agency Moody’s Investors Service, reflecting its relatively high level of bad loans.
Speculative grade
Moody’s has adjusted SBI’s mapping to a baseline credit assessment (BCA) of ‘ba1’ (speculative grade rating) from ‘baa3’ (investment grade rating) previously on the long-term scale.
BCAs are opinions of the intrinsic — or standalone — financial strength of issuers subject to extraordinary government support, which can include banks, sub-sovereigns and government-related corporate issuers.
The lowering of SBI's BCA reflects its relatively high level of bad loans, which are unlikely to be managed down quickly, said the agency.
The new BCA also reflects the bank’s relatively weaker ability to sustain any further deterioration in the economic environment relative to its similarly-rated peers globally.
Deposit rating unchanged
Due to SBI’s systemic importance, Moody's has left unchanged the global local currency deposit rating and senior unsecured debt rating at ‘Baa2’ (investment grade rating), said the agency in a statement. The outlook on all SBI’s ratings is stable.
The deterioration in asset quality witnessed over the last 18 months increases the bank’s risk profile, cautioned Moody’s.
The agency pointed to a rise in impaired loans, including re-structured loans, and a smaller cushion to absorb losses due to low-provision coverage and lower Tier-1 capital relative to other large banks in emerging markets.
Loan-loss reserves
Furthermore, SBI's shock-absorbing buffers are also not as robust as those of its peers. Its loan-loss reserves of 61 per cent of gross non-performing loans or less than 45 per cent of impaired loans are modest when compared globally.
Ramkumar.k@thehindu.co.in