Fitch Ratings has assigned State Bank of India's (SBI, BBB-/Stable) proposed senior unsecured debt an expected rating of 'BBB-(EXP)'.
The notes will constitute SBI's direct, unconditional, unsubordinated and unsecured obligations and will at all times rank pari passu among themselves and with all of its other unsubordinated and unsecured obligations. The tenor of the issue is expected to be around three years and the notes are to be issued by SBI's London branch.
The final rating is subject to the receipt of final documentation conforming to information already received.
The senior unsecured instruments are rated at the same level as the bank's Issuer Default Rating (IDR), in accordance with Fitch's criteria.
SBI's IDR is driven by its Support Rating Floor of 'BBB-', which is at the same level as its Viability Rating of 'bbb-', implying that the bank's standalone credit strength also underpins the IDR. The Support Rating Floor reflects Fitch's expectation of a high probability of extraordinary support from the government of India (BBB-/Stable), if necessary, given the bank's very high systemic importance and quasi-sovereign status.
SBI's core capitalisation should witness an improvement in the financial year ending-March 2017 (FY17). The bank received around 75% of the earmarked USD 1.1 billion (around 5% of FY16 equity) in new capital from the government in January 2017 and is likely to receive the remaining share before end-FY17. It also has plans to raise an additional USD 2.2 billion directly from the market, for which it has received shareholder approval, although that maybe pushed out to FY18.
The bank's non-performing loan (NPL) ratio of 7.2% at end-9MFY17 and stressed asset ratio of 9.5% were stable on a sequential basis and remain considerably lower than those of other large government banks. Absolute NPL growth has seen a sharp slowdown on a sequential basis since FY16. Loan growth was negatively affected owing to demonetisation during 3QFY17, but deposits swelled, with SBI's low-cost deposit ratio surging well above 45%. Credit costs remained a burden on earnings in 9MFY17, leading to net profit growth of -12%. This more than offsets gains from treasury and 4% stake sale of SBI's life insurance subsidiary.
SBI is set to merge with its five associate banks starting April 2017, after which its standalone assets will account for nearly a one-fourth share of India's banking-system assets.
Shares of the bank gained Rs 5.6, or 1.98%, to trade at Rs 287.75. The total volume of shares traded was 18,346,222 at the BSE (3.58 p.m., Wednesday).
