S&P has no plan to revise SBI rating post-capital infusion

Global rating agency Standard & Poor's (S&P) today maintained stable credit rating for domestic banks even as it warned that they are likely to face headwinds on their asset quality and margins which could deepen if economic growth further loses momentum.

"S&P rates 10 banks now and our credit outlook for all of them is stable. In our base case scenario, we don't expect any of these ratings to change. Having said that, we do see some pressure points building up, these are around asset quality and earnings deterioration, which we have seen in 2012. To an extent, we expect them to continue in 2013," S&P India credit analyst Geeta Chug said here.

S&P rates seven public sector banks and three private lenders in the country.

The 10 banks being rated by S&P are State Bank of India, ICICI Bank, HDFC Bank, Axis Bank, IDBI Bank, Indian Bank, Indian Overseas Bank, Syndicate Bank, Union Bank of India and Bank of India.

Chug added, "There are some downside risks to the stand-alone asset quality of these banks, especially the public sector ones, which are likely to face significant headwinds. So is our view on their margins, which are likely to fall by 20 basis points next fiscal to 2.5%. However, overall we maintain stable outlook for their credit rating."

She was talking to reporters on a conference call after releasing a report on 'India Banking Outlook: Economic Headwinds are Likely to Lower Asset Quality and Earnings in 2012'.

S&P sees the overall net interest margin of banks this fiscal to be at 2.7%. It has also pegged GDP growth to be at 6.8% (below the government projection of 6.9%) this fiscal and 6.5% in the next.

However, she said, S&P is positive about the private sector banks as they will be improving asset quality in fiscal 2012.

On the net interest margin of banks, she said, it will see a 20 basis points decline next fiscal from 2.7% this fiscal.

On profitability, Chug said for the first time in decades, the domestic banking system will report an under one% overall profit. In fact, it will be just 0.9% this fiscal and next.

She also said S&P sees a sharp spike in the restructured loans in FY12 and FY13. "The CDR portfolio of the system will rise from 2.9% this fiscal to between four and five% next fiscal," said Chug, adding this will be driven by the stress coming in from the high risk construction and real estate sectors.