Moody's keeps SBI's USD note drawdown unchanged at Baa3 following upsize

Moody's Investors Service, (Moody's) has kept unchanged its rating for State Bank of India's (SBI, Baa3 positive, ba1) senior unsecured notes, issued under its US$10 billion Medium-Term Note (MTN) program at Baa3, after the issuance was upsized to USD 600 million from USD 500 million.

The upsize will be carried out from its London branch, and the bonds will be listed on the Singapore Stock Exchange.

The outlook on the ratings, where applicable, is positive.

The Baa3 rating on the notes is based on the executed pricing supplement and the bank's MTN prospectus.

The Baa3 foreign currency senior unsecured debt rating is anchored on SBI's ba1 baseline credit assessment (BCA) and Moody's assessment of the likelihood of a very high level of support from the Indian government (Baa3 positive) in a stressed situation.

SBI's BCA of ba1 is underpinned by the bank's solid franchise as India's largest bank by assets and deposits, as well as its strong core earnings (pre-provisioning profits) profile and stable capital levels. While SBI's underlying asset quality has stabilized, the BCA also takes into consideration residual asset quality issues as a result of delayed recognition, and the associated impact of high credit costs on the bank's profits as it devotes resources to rebuilding its provisioning coverage.

The bank's final Baa3 rating incorporates a one-notch uplift due to Moody's assumption of the bank's very high level of support from the Indian government in a stressed situation. The assumption of high support is based on a combination of its large size and critical role in India's payment system, representing around 16.3% of system loans and 17.6% of system deposits as of end-March 2016, its nationwide reach, and the government's 60.18% stake in SBI.

What Could Change the Rating - Up

SBI's senior unsecured debt and deposit ratings could be upgraded if the India sovereign rating (Baa3, positive) is upgraded.

What Could Change the Rating - Down

SBI's BCA could face downward pressure if: (1) its NPL ratio increases substantially from current levels; and/or (2) if its core earnings fall and impacts its ability to support an increase in credit costs. Additionally, any indications that support from the Government of India has diminished, or that additional capital requirements may arise beyond the government's budgeted amount, could put the bank's ratings under pressure. Any downward changes in the sovereign's ceilings could also affect the bank's ratings.

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