S&P rules out rating upgrade for SBI in 18-24 months

Affirms present ratings, maintains stable outlook; doesn't see upside potential, as it won't rate bank above sovereign

Global rating agency Standard and Poor's (S&P) has affirmed the rating for State Bank of India at "BBB-/A-3' with a stable outlook. It, however, ruled out any upgrade for SBI's rating for the next 18-24 months.

The rating on SBI is expected to move in tandem with India's sovereign credit rating. S&P does not see any upside potential because it will not rate the bank above the sovereign.

"We do not expect to upgrade the sovereign rating on India in the next 18-24 months", the rating agency said.

The affirmed rating on SBI reflects the bank's undisputed market leadership in India, supported by a strong domestic franchise and high customer confidence," said S&P Global Ratings credit analyst Amit Pandey. "These factors translate into a good funding profile for the bank. SBI's stressed asset quality and moderate capital temper these strengths."

Like most other public sector banks in India, SBI's asset quality is likely to remain stressed. This is due to tepid domestic industrial activity, subdued corporate sector profitability, and high leverage in certain segments.

In SBI's case, a part of the challenges arises from managing a large organisation, and aligning policies and asset quality recognition norms of associate banks in line with its own, given the impending merger with its associates.

SBI's capitalisation will remain moderate. The lender's earnings continue to remain under pressure in the year ending March 31, 2017 because of high credit costs and depressed margins.

SBI's performance is expected to remain better than its public sector peers in India.

"The stable outlook reflects our expectation that the India-based bank will maintain its financial profile over the next 24 months," S&P added.