Moody's downgrades SBI's debt and local currency rating to junk

Moody's Investors Service has downgraded State Bank of India's senior unsecured debt and local currency deposit ratings to Baa3 or lowest investment grade rating from Baa2 and changed the outlook on SBI's financial strength rating to negative from stable as the economic slowdown puts pressure on the bank's credit quality.

The revised ratings is on par with Government of India's (Baa3 Stable) foreign currency bond rating.

Moody's said the combination of increasing pressure on credit fundamentals and the ongoing reliance on the fiscally constrained Indian government to maintain capital adequacy ratio are factors behind the rating downgrade at a level no higher than the sovereign.

The outlook for SBI's senior unsecured debt and local currency deposit is however stable.

The global rating firm has in the last week of August lowered its outlook for India's GDP growth to 4.5% from 5.5%, reflecting the recent depreciation of the rupee, which will exacerbate inflationary pressures, keeping domestic interest rates relatively high and hindering a recovery in domestic demand growth.

"Such weaker conditions will negatively affect the asset quality, profitability, and capital of public sector banks, including SBIBSE -5.39 %," it said.

SBI's first quarter net profit dipped to Rs 3,241.1 crore from Rs 3,752 crore as its gross NPAs grew to 5.6% from 4.99%, a year ago.

Government banks have been facing strain in asset quality due to cash flow mismatches for companies amid business downturn. A pile of restrcutured loans has made banks' asset quality more vunerable.

Source : Economic times

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