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Rating Action:

Moody's affirms SBI's Baa3 deposit ratings, downgrades standalone profile to ba2 from ba1

25 Aug 2020

Singapore, August 25, 2020 -- Moody's Investors Service has affirmed the long-term local and foreign currency deposit ratings of State Bank of India (SBI) at Baa3. The deposit ratings of SBI are at the same level as India's Baa3 sovereign rating.

At the same time, Moody's has downgraded SBI's Baseline Credit Assessment (BCA) and adjusted BCA to ba2 from ba1. As a result, Moody's has also downgraded SBI's foreign currency preferred stock non-cumulative MTN program rating to (P)B2 from (P)B1, and the rating of the preferred stock non-cumulative (Basel III compliant Additional Tier 1 securities) bond issued out of its DIFC branch to B2(hyb) from B1(hyb).

Moody's has maintained SBI's rating outlook, where applicable, as negative, in line with the outlook on India's sovereign rating.

This rating action concludes the review initiated on SBI's BCA, adjusted BCA, junior securities, and the junior securities of its London, Hong Kong, DIFC and Nassau branches initiated on 2 June 2020.

For a detailed list of the affected ratings, please refer to the end of this press release.

RATINGS RATIONALE

DEEPENING ECONOMIC SLOWDOWN EXACERBATED BY THE CORONAVIRUS OUTBREAK WILL DELAY RECOVERY IN SBI'S FINANCIAL METRICS

The economic shock from the coronavirus pandemic will exacerbate an already material slowdown in India's economic growth, weakening borrowers' credit profiles and hurting Indian banks' asset quality. Prolonged financial stress among rural households, weak job creation and a credit crunch among non-bank financial companies will lead to a rise in non-performing loans, delaying the ongoing clean-up of bank's balance sheet over the past two years.

The downgrade of SBI's BCA to ba2 from ba1 reflects Moody's view that the bank's asset quality and profitability will deteriorate. The resultant weakening in internal capital generation will reverse improvements in the bank's financial metrics achieved over the past two years.

Prior to the review for downgrade, Moody's had expected that improvements to SBI's asset quality and profitability would result in financial metrics in line with global peers with ba1 BCAs.

SBI's asset quality improved in the quarter ended June 2020, with its gross non-performing loan ratio declining to 5.4% from 7.5% a year ago. However, the ratio is potentially understated because it does not include loans on which the bank has granted payment deferrals. As of June 2020, about 9.5% of SBI's loans were under a repayment moratorium until the end of August 2020.

After the loan deferment period ends, the RBI has permitted Indian banks to restructure loans to borrowers whose earnings and businesses have been impacted by the pandemic. In line with the trend for other Indian peers, Moody's expects SBI to restructure loans. However, uncertainty around the length and depth of India's economic slowdown make it difficult to estimate what portion of restructured loans will eventually turn into non-performing loans.

Moody's views SBI's capitalization -- as measured by tangible common equity (TCE) relative to adjusted risk-weighted assets of 8.5% as of March 2020 -- low when compared to similarly rated global peers. While SBI's stakes in listed subsidiaries present potential sources of capital, Moody's expects that the bank's sustainable capitalization will be lower than global peers, in line with the expectation of the bank's management.

SBI's ba2 BCA takes into account the bank's strong funding and liquidity a result of its dominant market position, and its important links to government transaction-related businesses which support its stable funding franchise. As of the end of March 2020, SBI's liquidity coverage ratio (LCR) was healthy at 134%.

Moody's regards the coronavirus outbreak as a social risk under its environmental, social and governance (ESG) framework, given the substantial implications for public health and safety .

AFFIRMATION OF DEPOSIT RATINGS WITH A NEGATIVE OUTLOOK

The affirmation of SBI's Baa3 deposit ratings take into account Moody's expectation of a very high level of government support, based on the bank's dominant market share of 24% of system deposits as of June 2020, as well as the bank's importance to the country's banking system.

The negative outlook is in line with negative outlook on India's sovereign ratings, and incorporates the risks to the bank's financial profile in the current uncertain operating environment.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

WHAT COULD CHANGE THE RATING UP/ DOWN

Given the negative outlook, SBI's ratings are unlikely to be upgraded in the next 12-18 months. Nevertheless, the rating outlook could be changed to stable if India's rating outlook is changed to stable.

Moody's could downgrade SBI's ratings if India's sovereign rating is downgraded, reflecting the high interlinkages between the banks' credit profile and that of the government. Moody's could also downgrade SBI's BCA if there is a material decline in capital because of a strain on asset quality and profitability beyond Moody's current expectations.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

State Bank of India is headquartered in Mumbai and reported total assets of INR 43.8 trillion at 30 June 2020.

LIST OF AFFECTED RATINGS

Outlook Actions:

..Issuer: State Bank of India

....Outlook, Remains Negative

..Issuer: State Bank of India, DIFC Branch

....Outlook, Remains Negative

..Issuer: State Bank of India, Hong Kong Branch

....Outlook, Remains Negative

..Issuer: State Bank of India, London Branch

....Outlook, Remains Negative

..Issuer: State Bank of India, Nassau Branch

....Outlook, Remains Negative

Downgrades:

..Issuer: State Bank of India

.... Adjusted Baseline Credit Assessment, Downgraded to ba2 from ba1

.... Baseline Credit Assessment, Downgraded to ba2 from ba1

.... Long-term Pref. Stock Non-cumulative Medium-Term Note Program (Foreign Currency), Downgraded to (P)B2 from (P)B1

.... Long-term Junior Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba3 from (P)Ba2

.... Long-term Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba2 from (P)Ba1

..Issuer: State Bank of India, DIFC Branch

....Long-term Pref. Stock Non-cumulative Medium-Term Note Program (Foreign Currency), Downgraded to (P)B2 from (P)B1

....Long-term Junior Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba3 from (P)Ba2

....Long-term Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba2 from (P)Ba1

....Long-term Pref. Stock Non-cumulative Preferred Stock (Foreign Currency), Downgraded to B2(hyb) from B1(hyb)

..Issuer: State Bank of India, Hong Kong Branch

....Long-term Pref. Stock Non-cumulative Medium-Term Note Program (Foreign Currency), Downgraded to (P)B2 from (P)B1

....Long-term Junior Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba3 from (P)Ba2

....Long-term Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba2 from (P)Ba1

..Issuer: State Bank of India, London Branch

....Long-term Pref. Stock Non-cumulative Medium-Term Note Program (Foreign Currency), Downgraded to (P)B2 from (P)B1

....Long-term Junior Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba3 from (P)Ba2

....Long-term Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba2 from (P)Ba1

..Issuer: State Bank of India, Nassau Branch

....Long-term Pref. Stock Non-cumulative Medium-Term Note Program (Foreign Currency), Downgraded to (P)B2 from (P)B1

....Long-term Junior Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba3 from (P)Ba2

....Long-term Subordinate Medium-Term Note Program (Foreign Currency), Downgraded to (P)Ba2 from (P)Ba1

Affirmations:

..Issuer: State Bank of India

.... Short-term Counterparty Risk Assessment, Affirmed P-3(cr)

.... Long-term Counterparty Risk Assessment, Affirmed Baa3(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-3

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Baa3

.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-3

.... Long-term Deposit Rating (Foreign and Local Currency), Affirmed Baa3; outlook negative

.... Other Short Term Medium-Term Note Program (Foreign Currency), Affirmed (P)P-3

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa3

..Issuer: State Bank of India, DIFC Branch

.... Short-term Counterparty Risk Assessment, Affirmed P-3(cr)

.... Long-term Counterparty Risk Assessment, Affirmed Baa3(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-3

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Baa3

.... Other Short Term Medium-Term Note Program (Foreign Currency), Affirmed (P)P-3

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa3

..Issuer: State Bank of India, Hong Kong Branch

.... Short-term Counterparty Risk Assessment, Affirmed P-3(cr)

.... Long-term Counterparty Risk Assessment, Affirmed Baa3(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-3

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Baa3

.... Other Short Term Medium-Term Note Program (Foreign Currency), Affirmed (P)P-3

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa3

..Issuer: State Bank of India, London Branch

.... Short-term Counterparty Risk Assessment, Affirmed P-3(cr)

.... Long-term Counterparty Risk Assessment, Affirmed Baa3(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-3

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Baa3

.... Other Short Term Medium-Term Note Program (Foreign Currency), Affirmed (P)P-3

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa3

.... Long-term Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed Baa3; outlook negative

..Issuer: State Bank of India, Nassau Branch

.... Short-term Counterparty Risk Assessment, Affirmed P-3(cr)

.... Long-term Counterparty Risk Assessment, Affirmed Baa3(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-3

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed Baa3

.... Other Short Term Medium-Term Note Program (Foreign Currency), Affirmed (P)P-3

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa3

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alka Anbarasu
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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