Capital Intelligence affirms State Bank of India’s ratings but assigns a negative outlook to the financial strength rating

Capital Intelligence (CI), the international credit rating agency, today announced that it has affirmed
State Bank of India’s (SBI) foreign currency ratings at BBB- long-term and A3 short-term with a Stable
outlook. These ratings are the same as those assigned to the Indian sovereign. The support rating of 2
is maintained. Official support is very likely in case of need particularly in view of the Bank’s majority
government ownership and its systemic importance (it is the largest commercial bank in the country and
a major banker to the government). The financial strength rating is affirmed at BBB reflecting the
Bank’s dominant position in the Indian financial sector, its extensive overseas operations, good senior
management team and moderately good financials overall. However, the outlook for the financial
strength rating is Negative since earnings may be strained in the current financial year due to a possible
increase in non-performing loans and tighter central bank provisioning norms. The major factors
constraining the ratings were SBI’s low loan-loss provision coverage ratio and the challenging operating
environment in the country.
SBI performed well in FY2009 on the back of strong growth in net interest and non-interest income.
The return on average assets and the operating profit to average total assets ratio improved during the
year. However, the two ratios weakened in H1 of FY2010 due to the modest growth in net interest, a
substantial increase in the net provision charge and higher operating costs. SBI remains adequately
capitalised and its ratio of unprovided NPLs to free capital was reasonably low. Liquidity ratios remain
strong; the Bank has built a large customer deposit base through its vast network of branches and other
offices.
With total assets of USD189 billion at end March 2009, SBI is the largest commercial bank in India. The
Bank and its banking subsidiaries together control a quarter of the banking assets in the country. The
Bank operates a domestic network of more than 11,400 branches and over 8,500 ATMs. SBI’s profitable
and growing foreign operations are spread over 92 offices in 32 countries across the globe. It is the
largest foreign exchange dealer in India and a market-maker in many currencies. It is the principal
banker to the government, acts as an agent of the RBI and handles around two-thirds of government
related business in the country. SBI’s corporate and retail banking businesses service over 90 million
customers.