In a further blow to the countrys largest lender, the rating agency simultaneously lowered the outlook on SBI's financial strength to negative from stable.
Relying heavily on the government for capital was a weakness, the rating agency pointed out in a release, which also dwelt on the lenders deteriorating asset quality. SBIs Tier 1 capital ratio at the end of June stood at 9.01%.
Given the importance of expected capital injections to maintain SBIs Tier 1 ratio above the regulators 8% target, Moodys believes it is no longer appropriate to assign a higher supported rating to SBI than that of the sovereign, the agency observed.
SBI is likely to seek another capital injection from the Indian government at the end of the current fiscal year (April 2013-March 2014). The bank will have to compete with other public sector banks that have similar recapitalisation needs, Moody's added.
In October 2011,Moodys had downgraded SBIs financial strength rating (BFSR), or stand-alone rating, to D+ from C- on lower tier I and asset quality worries. The senior foreign currency bond rating, however, was left at Baa2.
Already, banks in India are reeling under a liquidity shortage with deposit growth sluggish and tepid loan growth as interest rates rise. SBI raised its base rate last week by 10 basis points to 9.8% to combat the rising cost of funds. SBIs market capitalisation has fallen 19% between April this year and now to Rs 1.13 lakh crore on Monday.
The agency said SBI's credit profile faced negative pressures owing to the slowdown in the economy, which it estimates will grow at 4.5% in FY14. The lenders gross non-performing assets (NPAs) rose sharply in the April-June period to 5.6% of gross loans from 4.8% at end-March 2013 and 5.0% at end-June 2012.
The bank reported a fall in stand-alone profits of 13.6% y-o-y to Rs 3241 crore for the three months to June, 2013 against the backdrop of a weak economy while asset quality deteriorated. The country's largest lender also took a mark-to-market hit on its international investment portfolio on account of the rise in global bond yields. The bank continued to grapple with asset quality concerns reporting fresh slippages of Rs 13,766 crore in Q1FY14 while net NPAs rose to 2.83%, up 73 basis points sequentially.