Global rating agency Moody's on Monday downgraded State Bank of India, citing increasing pressures on credit profile and capital generation issues. Fitch Ratings, on the other hand, lowered the rating of two other leading PSU banks — Bank of Baroda and Punjab National Bank.
While Moody's has downgraded rating for SBI's senior unsecured debt and local currency deposit from 'Baa2' to 'Baa3', Fitch Ratings has downgraded viability rating (VR) of PNB and Bank of Baroda and the issuer default rating (IDR) of Indian Bank.
SBI's new rating is on par with rating for Government of India's (Baa3 stable) foreign currency bonds. The downgrades have come at a time when bank stocks have come under hammering after the Reserve Bank hiked the repo rate to fight inflation last week.
According to Moody's, a combination of increasing pressure on credit fundamentals and ongoing reliance on fiscally constrained government to maintain capital at levels desired by regulators argue for appropriateness of supported debt and deposit ratings of SBI at a level no higher than the sovereign.
It affirmed SBI's financial strength rating at "D+". It, however, changed the outlook on financial strength rating to "negative" from "stable".
Moody's said weaker economic conditions will negatively affect the asset quality, profitability, and capital of public sector banks, including SBI.
Moody's said it's no longer appropriate to assign a higher supported rating to SBI than that of the sovereign in view of the importance of expected capital injections to maintain SBI's Tier 1 ratio above the regulator's 8 per cent target.
"While there may be a seasonal element to this rise, the spike in NPAs illustrates that the bank's asset quality is under pressure," it said.
While downgrading PNB and BoB by one notch to 'BB+' from 'BBB-', Fitch observed, "Given the build-up of stressed assets (NPA and restructured loans) at Indian banks (10 per cent of loans at end-June 2013, with NPAs at 3.9 per cent of loans), the equity buffer at many state-owned banks is looking increasingly stretched compared with those of their private peers, despite regular capital injections from the government."
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