CRISIL says SBI's asset quality under shadow of loan recast

Flagging concerns over State Bank of India’s large portfolio of restructured loans, rating agency CRISIL has said the bank’s asset quality remains vulnerable to its recast loan book, as the slippages from this portfolio have been higher than the industry.

The rating agency reaffirmed the rating for the country’s largest lender’s Tier-II bonds at AAA\stable. The ratings on the debt instruments continue to reflect the SBI group’s dominant market position in the Indian banking industry, strong resource profile, and adequate capitalisation, CRISIL said in a statement.

It takes into account the continued strong support the bank is expected to receive from its majority owner, the Government of India.

However, the rating strengths are partially offset by the SBI group’s modest asset quality. It is expected to remain modest over the medium-term as it is likely to remain exposed to customers of varying credit quality, and to a variety of sectors.

The bank’s asset quality remains vulnerable to the high proportion of restructured standard advances (RSA) at 3.4 per cent (as on September 13). The cumulative slippages from RSA for SBI have been higher than the industry average.

The deterioration in the bank’s asset quality was seen across sectors — agriculture, small and medium enterprises, and corporate — given the continued weak macroeconomic environment.

SBI’s gross non-performing assets, on a standalone basis, were higher at 4.8 per cent as on March 31, 2013. The same increased to 5.6 per cent as on September 30, 2013, and was higher than that of most of its peers. The SBI group has a market share of around 22 per cent in deposits and 23 per cent in advances at the end of March 2013.

Referring to capital adequacy, CRISIL said the SBI group has adequate capitalisation, marked by a Tier-I capital adequacy ratio (CAR) of 8.27 per cent as on September 30, 2013, under Basel-III.

As steps to boost capital base, SBI will raise about Rs 9,600 crore by placing shares with institutional investors in the fourth quarter (January-March 2014).

On a standalone basis, SBI’s Tier-I CAR (under Basel III) was 8.7 per cent as on September 30, 2013 (9.3 per cent as on March 31, 2013 under Basel-III).

The Centre will infuse equity capital of Rs 2,000 crore in FY14 as part of its public sector bank recapitalisation programme. In FY13, it injected Rs 3,000 crore.