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Moody’s downgrades SBI; to impact overseas, not local, borrowing
News
Moody’s has downgraded State Bank of India’s financial strength rating
(BFSR), or standalone rating, to D+ from C-. As per Moody’s, this is on
account of SBI’s lower capital and its inability to freely access the capital
market. Further, Moody’s cited deteriorating asset quality likely in the near
term due to higher interest rates and a slower economy. We note that
PSU banks such as BoB, BoI and PNB are at D+ and with this
downgrade, SBI’s rating has been aligned with them. ICICI, Axis,
and HDFC Bank are at C-.
Analysis
SBI has low Tier I ratio of 7.6% and the Government of India has yet to accept
the bank’s request for capital infusion over the past one year. Further, SBI’s
NPL ratio is high at 3.5% with incremental slippage ratio at 3.72% and we
expect this to remain high given macro and micro (SBI’s needs to significantly
improve its risk appraisal and collection efforts) issues.
Implications
Currently, about 10% of SBI’s borrowings and deposits and 5% of its
revenue are in foreign currency. SBI (along with most other Asian banks)
has seen its CDS spreads increase by 201 bp since June 2011. We believe
that in the recent past access to international borrowing for the sector has
been impacted by global issues and NPL concerns, and SBI (and perhaps
even other banks) will see its borrowing cost increase on international
borrowing impacting growth and margin in this business over the near
term. However, we do not expect any impact on SBI’s ability to raise
deposits in the domestic market. We note among other large international
borrowers such as ICICI Bank, Axis, BoB and BoI, ICICI Bank has the highest
Tier I ratio of >13%, with others at >8%.
While issues relating to mispricing of assets and pension provisions are
behind us, the low Tier I and higher NPLs continue to remain key concerns
for SBI. We maintain Neutral and our 12-m target price.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Moody’s downgrades SBI; to impact overseas, not local, borrowing
News
Moody’s has downgraded State Bank of India’s financial strength rating
(BFSR), or standalone rating, to D+ from C-. As per Moody’s, this is on
account of SBI’s lower capital and its inability to freely access the capital
market. Further, Moody’s cited deteriorating asset quality likely in the near
term due to higher interest rates and a slower economy. We note that
PSU banks such as BoB, BoI and PNB are at D+ and with this
downgrade, SBI’s rating has been aligned with them. ICICI, Axis,
and HDFC Bank are at C-.
Analysis
SBI has low Tier I ratio of 7.6% and the Government of India has yet to accept
the bank’s request for capital infusion over the past one year. Further, SBI’s
NPL ratio is high at 3.5% with incremental slippage ratio at 3.72% and we
expect this to remain high given macro and micro (SBI’s needs to significantly
improve its risk appraisal and collection efforts) issues.
Implications
Currently, about 10% of SBI’s borrowings and deposits and 5% of its
revenue are in foreign currency. SBI (along with most other Asian banks)
has seen its CDS spreads increase by 201 bp since June 2011. We believe
that in the recent past access to international borrowing for the sector has
been impacted by global issues and NPL concerns, and SBI (and perhaps
even other banks) will see its borrowing cost increase on international
borrowing impacting growth and margin in this business over the near
term. However, we do not expect any impact on SBI’s ability to raise
deposits in the domestic market. We note among other large international
borrowers such as ICICI Bank, Axis, BoB and BoI, ICICI Bank has the highest
Tier I ratio of >13%, with others at >8%.
While issues relating to mispricing of assets and pension provisions are
behind us, the low Tier I and higher NPLs continue to remain key concerns
for SBI. We maintain Neutral and our 12-m target price.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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