Close on the heels of Standard & Poor’s (S&P) warning of a potential downgrade of India’s sovereign credit rating, it has lowered the standalone credit profile of State Bank of India and of Union Bank of India.
While it has revised downwards the credit profile of SBI to ‘BBB-’ from ‘BBB’, it has cut Union Bank’s to ‘BB+’ from ‘BBB-’ based on anticipation of the banks’ weak asset quality performance.
“We revised the stand-alone credit profiles of SBI and UBI because we expect the banks’ asset quality to remain weak and credit costs to stay high. We expect SBI’s and UBI’s asset quality to remain stressed in the fiscal years ending March 31, 2013, and 2014, partly due to continued slippages in their restructured loan books,” S&P said.
As on June 30, SBI’s gross non-performing loan ratio on a stand-alone basis stood at 5%. This is the highest among the Indian banks that S&P rated, it said. On a stand-alone basis, the bank’s mid-corporate (NPL: 9.3%) and agriculture (NPL: 9.8%) portfolios are particularly stressed. According to S&P, non-performing loans in UBI’s agriculture portfolio have also surged. Moreover, the bank has asset concentration in its infrastructure portfolio, especially in the power sector, which is facing challenges.
The ratings firm, however, affirmed its ‘BBB-’ long-term and ‘A-3’ short-term issuer credit ratings on seven government-owned banks in India. The outlook on all the long-term ratings is negative.