For better ratings, SBI taps Moodys, finmin S&P

Written by Sunny Verma | New Delhi | Updated: Apr 11 2012, 09:23am hrs
State Bank of India (SBI) has pitched for a ratings upgrade from Moodys after the banks executive committee cleared a government equity infusion worth R7,900 crore. The ratings agency has, however, indicated that capital infusion alone may not be sufficient for an upgrade.

Indias largest bank made the pitch even as finance ministry officials sought a higher sovereign rating from Standard & Poors, saying the economy has done far better than the grade warrants. The officials are meeting the agency over two days. India has a sovereign rating of BBB-/stable, the lowest investment grade.

SBI could earn an automatic upgrade if India climbs the ratings ladder. The bank has written to Moodys detailing the capital infusion and its initiatives on conserving capital. A government official familiar with the matter said the bank would make a detailed presentation to the agency soon after finalising its annual accounts for 2011-12.

Last October, Moodys cut SBI bank financial strength rating (BFSR), or standalone rating, to the last rung of investment grade D+, citing modest capital and weakening asset quality at the bank.

An SBI executive said the bank has written to the ratings agency about the capital infusion to secure a possible upgrade.

SBI, the countrys largest lender, received the approval of the executive committee of its central board last month for issuing over 3.6 crore equity shares worth Rs 7,900 crore to the government. This raised the governments shareholding in the bank to 61.58% from 59.4%.

A Moodys spokesperson said the agency would communicate about its review on SBI when further update is available. Moodys, though, indicated that capital infusion alone may not be sufficient to raise the banks BFSR or standalone ratings.

BFSRs represent Moodys opinion of a banks intrinsic safety and soundness and, as such, exclude certain external credit risks and credit support elements that are addressed by Moodys Bank Deposit Ratings, the spokesperson said.

BFSRs do not take into account the probability that the bank will receive such external support, nor do they address risks arising from sovereign actions that may interfere with a banks ability to honor its domestic or foreign currency obligations, the spokesperson added, quoting from the agencys earlier report on SBI.

After the fund infusion, SBIs Tier-I capital will cross 8% of assets from a low 7.47% in September. Tier-I capital comprising equity and reserves fell by 2 percentage points after it set aside Rs 7,500 crore from its reserves towards employees pension in fourth quarter of 2010-11.

Analysts expect SBIs earnings to grow sharply in the fourth quarter year-on-year due to the low base. Increase in restructured loans during 4Q FY 12E will likely overshadow stable business performance of banks, Kotak Institutional Equities said in a research report on banking sector released Tuesday. SBIs stock closed up 2.37% at Rs 2,151on the BSE on Monday.

We expect earnings growth of all banks at over 40% y-o-y (largely due to low base of SBI) led by NII growth of 18% but tempered by 13% y-o-y growth in loan-loss provisions, it said. Excluding SBI, banks earnings growth is estimated at 4% in the fourth quarter 2011-12.

In the same quarter, SBIs net interest income is expected to grow 46% as compared to 18% for all public sector banks. Overall bank credit growth in the economy slowed to 17% in 2011-12 from 21.5% growth in 2010-11.