MUMBAI: Moody's Ratings has affirmed State Bank of India's Baa3 long-term deposit ratings and upgraded the bank's baseline credit assessment (BCA) to Baa3 from Ba1.The agency has also upgraded the additional tier 1 (AT1) securities preferred stock non-cumulative medium term note programme of the bank rating to Ba3 from B1.
The upgrade of the BCA does not result in any change in the deposit ratings because the deposit ratings are already at the same level as the nation’s sovereign rating (Baa3 stable). At the same time, it has maintained a stable outlook on the ratings, where applicable, the agency’s Amit Pandey and Alka Anbarasu said on Monday in a note issued from Singapore.
“The affirmation of SBI's ratings with a stable outlook reflects the bank's large and diversified lending franchise with sound asset quality. SBI has the strongest retail franchise and access to low-cost deposits, and sufficient holdings of liquid government securities support its funding and liquidity.
“The upgrade of the bank's BCA is driven by our expectation that the bank's internal capital generation along with opportunistic external capital raise will improve its capitalization over the next 12-18 months, bringing its standalone credit profile in line with the other similarly rated peers,” Moody’s said.
The agency also expects the bank's loans to grow by 12%, broadly in line with the industry's average loan growth for the fiscal 2026. SBI's consolidated common equity tier 1 ratio (CET1) improved to 11.1% as of March 2025 from 10.3% as of March 2022.
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, it added.SBI's adequate net interest margin, diversified non-interest income and low credit cost support its profitability.
The bank's return on average assets for fiscal 2025 was 1.1%. We expect 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 fiscal year.
Moody’s expects the bank's asset quality to remain broadly stable with a modest uptick in credit costs from cyclically very low levels. Its corporate book is skewed towards highly rated borrowers while the retail book has a large share of secured products like mortgages and auto loans. SBI's gross nonperforming loan ratio improved to 1.8 as of March 2025 from 2.2% as of March 2024 and compares favorably with the industry average of 2.3% as of March 2025.
Funding and liquidity will continue to be the bank's credit strengths as the largest bank with 23% deposit market share, with most of its funding coming from retail deposits.
The agency considers the resilience of SBI’s asset quality and improving capitalization as an indicator of a more prudent financial strategy. As a result, we have revised SBI's governance issuer profile score to G-2 from G-3 while maintaining the overall credit impact score at CIS-2.