A recent press report said that international rating agency Moody’s has suggested that State Bank of India has to increase and sustain the level of its Tier-1 capital, and improve its asset quality over an extended period in order to raise its stand-alone rating. SBI was downgraded to D+ from C-.
As per reports from the agency, the Rs. 23,000-crore that SBI is looking through a rights issue is likely to raise its Tier 1 ratio to approximately 9.3 per cent but the capital deployed for loan growth in the next three fiscal years will cause the Tier 1 ratio to fall below 8 per cent which will result in the need for another capital raising exercise.
Reports said that on the asset quality front, the bank’s non-performing assets, as of 30 June 2011, has reached 3.52 per cent of loans and Rs 27,768 crore on gross basis. It said that the bank’s new NPA formation rate since 3QFY11 is likely to continue and its potential credit costs are also expected to go up in future. The NPA — as a percentage of the bank’s Tier 1 capital ratio — is now about 43 per cent.
According to Mr. Ajay Parmar, Head Institutional Research, Emkay Global, said that the rating should be seen as more of a precautionary measure and that the rating will be upgraded after the Governments capital infusion.