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India
Credit Update
State Bank of India
Ratings Rating Rationale
Current · The ratings of State Bank of India (SBI) reflect its strong financial position
Ratings among Indian banks, together with its quasi‐sovereign risk status as India’s
Foreign Currency largest bank, with huge systemic importance.
Long‐Term IDR BBB‐
Short‐Term IDR F3 · The infusion of INR167bn (USD4.2bn) through a rights issue in March 2008
National
boosted SBI’s equity by nearly 50% while maintaining the government’s
Long‐Term AAA(ind) shareholding at 59%. This helped maintain the bank’s Tier 1 and total capital
ratios above those of most government banks, even after the total capital ratio
Individual C
Support Rating 2
was adversely affected by about 1.5 percentage points due to the
Support Rating Floor BBB‐ implementation of Basel II at end‐March 2008 and write‐downs of equity for
additional provisions for pension liabilities.
Sovereign Risk
Long‐Term IDR BBB‐ · After improving during the benign credit environment until FY07, SBI’s reported
Short‐Term IDR F3
gross NPL ratio deteriorated in the last quarter of FY08 (FY08: 3.04%; FY07:
2.92%,) reflecting the pressures of rising costs on borrowers, particularly in the
Outlook SME (18% of loans) and consumer (21% of loans) segments. The government‐
Foreign Long‐Term IDR Stable
National Long‐Term Stable sponsored waiver scheme for agriculture loans could help write off some of the
Sovereign Foreign Long‐Term Stable NPLs in this sector (20% of total NPLs), although delinquencies appear to be
IDR increasing since the announcement of the scheme. The bank expects better
loan monitoring to help control delinquencies in consumer loans. Recoveries
Financial Data from NPLs could be affected, however, if property prices were to correct, and
State Bank of India the bank’s relatively low loan loss reserves (42% of gross NPLs in FY08) may
31 Mar 08 31 Mar 07 need to be strengthened.
Total assets (USDbn) 180.5 129.9
Total assets (INRbn) 7,214.8 5,665.7 · Profitability in FY08 was boosted by increased fee income and trading in equity.
Total equity (INRbn) 489.9 313.0 Fee income is stronger than at other government banks due to SBI’s dominant
Net income (INRbn) 67.3 45.4
ROA (%) 1.04 0.86
market share in the government and remittance businesses; income from the
ROE (%) 16.76 15.41 distribution of investment products through the branches has been growing from
Capital adequacy (%) 12.64 12.34 a small base. RoA could be affected in FY09 if trading income were to fall off,
Tier 1 ratio (%) 8.48 8.01
or there were pressure on the net interest margin or any increase in loan loss
and marked‐to‐market provisions on the government securities portfolio.
Analysts
· Owing to its quasi‐sovereign status and extensive reach, SBI has access to huge
Ananda Bhoumik
+91 22 4000 1720 low‐cost and stable customer deposits.
ananda.bhoumik@fitchratings.com
Support
Arshad Khan
+91 224 000 1733
· SBI is India’s largest bank, with more than 15% of the banking system’s deposits.
arshad.khan@fitchratings.com Confidence in the banking industry would collapse if it failed, so Fitch believes
there is a high probability of support from the government.
Ambreesh Srivastava
+65 6796 7218
ambreesh.srivastava@fitchratings.com Key Rating Drivers
· SBI’s Long‐Term Foreign Currency IDR is driven by its Individual Rating and is at
the Support Floor. A downgrade of the Individual Rating would be linked to
inability of the risk management systems to handle loan growth and is unlikely.
Profile
With more than 10,000 branches and 8,500 ATMs, SBI continues to dominate the
banking sector in India. Mergers with the seven associate banks with strong regional
presence would increase SBI’s loans by 45%, but face employee resistance.
Subsidiaries in the asset management, investment banking, life insurance and credit
card businesses have leading market shares in the domestic market.
Ratio Analysis
STATE BANK OF INDIA
31 Mar 2008 31 Mar 2007 31 Mar 2006 31 Mar 2005
Original Original Original Original
I. PROFITABILITY LEVEL
1. Net Income/Equity (av.) % 16.76 15.41 17.04 19.43
2. Net Income/Total Assets (av.) % 1.04 0.86 0.92 0.99
3. Nonint. Exp/Net Interest Rev. +
Other Operating Income % 49.05 52.66 53.93 48.00
4. Net Interest Rev./Total Assets (av.) % 2.64 2.83 3.01 3.20
5. Preprovision Operating Profit/Total Assets (av.) % 2.03 2.00 2.10 2.52
6. Operating Profit After Provisions/Total Assets (av.) % 1.62 1.44 1.28 1.56
II. CAPITAL ADEQUACY (year end)
1. Internal Capital Generation % 12.97 12.48 13.79 16.04
2. Equity/Total Assets % 6.79 5.52 5.60 5.23
3. Equity/Loans % 11.75 9.28 10.57 11.89
4. Capital/Risks Tier 1 % 8.48 8.01 9.36 8.04
5. Capital/Risks Total % 12.64 12.34 11.88 12.45
III. LIQUIDITY (year end)
1. Liquid Assets/Deposits & Money Mkt Funding % 34.83 35.30 43.09 54.17
2. Liquid Assets & Marketable Debt
Securities/Deposits & Money Mkt Funding % 35.87 35.93 44.65 55.66
3. Loans/Deposits & Money Mkt Funding % 70.74 70.98 63.71 52.40
IV. ASSET QUALITY
1. Provisions for Loan Losses/Loans (av.) % 0.52 0.47 0.06 0.65
2. Provisions for Loan Losses/Preprov. Operating Profit % 15.28 13.44 1.53 11.03
3. Loan Loss Reserves/Loans % 1.28 1.39 1.74 2.98
4. Loan Loss Reserves/Impaired Loans % 42.17 47.41 44.63 49.93
5. Gross NPL's/Loans % 3.04 2.92 3.90 5.97
6. Net NPL's/Equity % 15.15 16.80 17.75 22.22