Moody's Investors Service has affirmed State Bank of India's (SBI) local and foreign currency deposit ratings at Baa3/P and expects not much deterioration in its asset quality.
The agency has also retained IDBI Bank's local currency and foreign currency bank deposit ratings at Baa3/P-3 apart from affirming its Baa3 senior unsecured debt and senior unsecured medium-term note programme ratings at (P)Baa3.
On retaining SBI's ratings, the agency said, "Given the amount of bad loans that SBI has recognised over the years, we believe its asset quality will not come under significant pressure." But it sees a 90 bps spike in SBI's NPAs at 6 per cent in the March quarter from 5.1 per cent in September quarter.
Moody's said, "The affirmation of the ratings also take into account SBI's strong liquidity and funding position. As the largest bank by assets and deposits, SBI accounts for around 16 per cent of system loan and 17 per cent of system deposits as of June 2015."
The key remaining asset quality challenges is SBI's exposure to highly leveraged corporates that remain classified as standard assets, despite these groups showing weak debt-to-Ebitda and interest coverage ratios, the agency added.
The agency has also affirmed the senior unsecured debt and senior unsecured medium-term note programme, issued through SBI's London branch at Baa3, apart from retaining SBI's baseline credit assessment at Ba1.
Moody's has also retained the ratings on the foreign currency subordinated MTN and foreign currency junior subordinate MTN programme at (P)Ba1 and (P)Ba2, respectively. The agency has a positive outlook on SBI's long-term deposit and senior unsecured debt issued through the London branch.
The agency notes that SBI has been struggling with poor asset quality since 2011 when GDP growth fell to under 9 per cent. In particular, high corporate leverage and stalled infrastructure projects led to rising levels of non-performing loans and restructured loans.