Moody's upgrades SBI's baseline credit rating, profitability to moderate

Moody's upgrades State Bank of India's baseline credit rating to "Baa3", citing expected improvement in capitalization. Profitability may moderate due to lending rate cuts in the near term

Global rating agency Moody's has upgraded State Bank of India's (SBI) baseline credit assessment (BCA) from speculative (“Ba1”) to medium grade (“Baa3”) intrinsic financial strength on the expectation of improvement in its capitalisation over the next 12-18 months.

 

This will be driven by the bank's internal capital generation along with opportunistic external capital raising exercise, it said.

 

The BCA upgrade brings SBI's standalone credit profile in line with the other similarly-rated peers, Moody's said in a statement on Monday.

 

The bank's plan to raise new equity capital and capital gains from the partial sale of its stake in Yes Bank will help improve the CET1 ratio further, supporting balance sheet buffers. The country's largest lender is already in the market to raise up to ₹25,000 crore in equity capital from qualified institutional investors. Plus, its board has given a nod to raise debt capital up to ₹20,000 crore in the current financial year (FY26). Its capital adequacy ratio stood at 14.25 per cent with Common Equity Tier I (CET1) of 10.81 per cent at the end of March 2025. 

 

The rating agency also affirmed SBI's "Baa3" long-term deposit ratings. At the same time, it maintained a stable outlook on the ratings. The affirmation of ratings with a stable outlook reflects the bank's large and diversified lending franchise with sound asset quality. SBI's strongest retail franchise amongst Indian banks, access to low-cost deposits, and sufficient holdings of liquid government securities support its funding and liquidity, Moody’s said.

 

SBI's adequate net interest margin, diversified non-interest income and low credit cost support its profitability. The bank's return on average assets was 1.1 per cent for the financial year ended March 2025.

 

“We expect the bank's profitability to moderate in the next couple of quarters because of policy rate cuts feeding through its lending rates, although the impact will be offset somewhat with a gradual lowering of funding costs in the later half of the financial year,” Moody's said.

 

The bank's asset quality is expected to remain broadly stable with a modest uptick in credit costs from cyclically very low levels. The bank's corporate lending book is skewed towards highly rated borrowers. Its retail book has a large share of secured products like mortgages and auto loans, it added.