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Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/CRISIL AA+/FAAA/Stable' ratings on the debt instruments of State Bank of India (SBI; part of the SBI group). Further, CRISIL Ratings has withdrawn its ratings on the Rs 2,500 crore tier I bonds (See Annexure details of Rating witdhrawn table) (Basel III), in line with its withdrawal policy.
The ratings continue to centrally factor in the SBI group’s dominant market position in the Indian banking industry, strong resource profile and adequate capitalisation. The ratings also factor in the continued strong support that the bank is likely to receive from its majority owner, Government of India (GoI), both on an ongoing basis and in the event of distress. These strengths are partially offset by the modest asset quality of the group.
In line with the relief measures announced by the Reserve Bank of India (RBI) during the Covid-19 pandemic, SBI had provided moratorium to its borrowers. Though collections declined during the initial months of the first wave, they improved subsequently. However, the second wave of the pandemic led to intermittent lockdowns and localised restrictions, which impacted collections once again. Although the impact was moderate during this phase, any adverse change in payment discipline of borrowers may lead to higher delinquencies.
Under the various schemes announced by the RBI dated January 1, 2019, February 11, 2020, August 6, 2020, and May 5, 2021, the bank had outstanding restructured portfolio of 1.2% gross advances as on September 30, 2021. The ability of the bank to manage collections and asset quality going forward this fiscal will be a key monitorable. Over the medium term, the impact of a possible third wave will also be closely monitored. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of SBI and its subsidiaries, collectively referred to as the SBI group, as the subsidiaries are an integral part of SBI’s growth strategy. The ratings also factor in the strong support that the bank is expected to receive from GoI, both on an ongoing basis and in the event of distress.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: * Strong expectation of support from GoI The ratings continue to factor in the strong support expected from GoI, both on an ongoing basis and in the event of distress, given that GoI is the majority shareholder in public sector banks (PSBs) and the guardian of India's financial system. Stability of the banking sector is of prime importance to GoI, considering its criticality to the economy, the strong public perception of sovereign backing for PSBs and the adverse implications of a PSB failure in terms of a political fallout, systemic stability and investor confidence. CRISIL Ratings believes the majority ownership creates a moral obligation on GoI to support PSBs, including SBI.
As part of the Indradhanush framework, the government had pledged to infuse at least Rs 70,000 crore in PSBs over fiscals 2015 to 2019, of which Rs 25,000 crore per annum was infused in fiscals 2016 and 2017. Furthermore, in October 2017, the government outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019; SBI received Rs 8,800 crore in fiscal 2018 under this package. Also, GoI had allocated Rs 70,000 crore in fiscal 2020.
* Dominant market position in the Indian banking industry The SBI group is the largest player in the banking sector in India, with market share of over 20% in deposits and advances as on September 30, 2021. On consolidated basis, SBI had net advances and deposits of Rs 2,496,383 crore and Rs 3,844,768 crore, respectively, as on September 30, 2021 (Rs 2,500,599 crore and Rs 3,715,331 crore, respectively, as on March 31, 2021). The group's robust brand, pan-India presence and wide reach in rural and semi-urban areas have resulted in diversified advances book and large and stable deposit base. In addition to its strong presence in corporate finance, the bank is a leader in the retail finance segment; it also offers other financial services such as investment banking and life insurance. The SBI group also has wide presence in overseas markets.
* Strong resource profile A large and diversified deposit base lends stability to the group’s resource profile, which is backed by a healthy proportion of low-cost current account and savings account (CASA) deposits. Low-cost CASA deposits have remained above 40% over the past few years and accounted for 46.2% of total deposits (excluding foreign deposits) as on September 30, 2021. The high proportion of CASA deposits helps the group to maintain its cost of deposits (CoD) at competitive level; CoD was 4.1% in fiscal 2021.
* Adequate capitalisation SBI (standalone) had adequate capitalisation, indicated by tier-I and overall capital adequacy ratios (CAR; under Basel III) of 11.63% and 13.96%, respectively, as on September 30, 2021 (11.44% and 13.74%, respectively, as on March 31, 2021). The bank received equity infusion of Rs 5,681 crore and Rs 8,800 crore from GoI in fiscals 2017 and 2018, respectively. Furthermore, it raised equity capital of Rs 15,000 crore through qualified institutional placements (QIPs) in June 2017. It also has the flexibility to raise additional capital through stake sale in its subsidiaries. Capital position benefitted from proceeds of Rs 5,782 crore [pre-tax(consolidated)] in fiscal 2020 through stake sale in SBI Life Insurance Company Ltd (SBI Life) and SBI Cards and Payment Services Ltd. In fiscal 2021, the company earned Rs 1,367 crore through stake sale in SBI Life.
However, given its large scale of operations, the SBI group will need continued steady capital infusion to support growth and meet capital requirement as per Basel III guidelines. CRISIL Ratings believes GoI will continue to support SBI's capital requirement, considering its stature as India’s largest PSB. Also, GoI held 56.92% stake in the bank as on September 30, 2021, providing flexibility to the bank to raise capital by diluting GoI's stake.
Weakness * Modest asset quality Asset quality remained modest, though it has improved over the past couple of years, driven by higher recoveries and write-offs. SBI's standalone gross non-performing assets (GNPAs) stood at 4.90% as on September 30, 2021, compared with 6.15% as on March 31, 2020. While GNPAs witnessed an uptick from 4.98% as on March 31, 2021 to 5.32% as on June 30, 2021 due to impact of the pandemic, the same declined during the quarter ended September 30, 2021. In the past, GNPAs were sizeable owing to pressure on asset quality primarily in the large and mid-corporate loan books; however, in the current cycle, some of the other segments have been more impacted. Slippages to NPAs stood at 1.7% on annualised basis for the half year ended September 30, 2021 (1.2% in fiscal 2021, and 2.3% in fiscal 2020).
Overall asset quality will likely remain modest over the medium term as the bank will continue to cater to customers of varying credit quality and to a variety of sectors. Also, the bank’s ability to manage asset quality in the ongoing challenging scenario will be a key monitorable. |
Liquidity: Superior The bank has a sizeable retail deposit base. Liquidity coverage ratio (consolidated) stood at 160% as on September 30, 2021. It also has access to systemic sources of funds, including the liquidity adjustment facility from the RBI, the call money market and the refinance limits from apex bodies such as National Housing Bank and National Bank for Agriculture and Rural Development.
ESG Profile CRISIL Ratings believes that SBI’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.
The ESG profile for financial sector entities typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment.
SBI has an ongoing focus on strengthening various aspects of its ESG profile.
SBI’s key ESG highlights:
There is growing importance of ESG among investors and lenders. SBI’s commitment to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets. |
Outlook Stable CRISIL Ratings believes the SBI group will maintain its dominant position in the financial services sector in India and strong resource profile over the medium term. Furthermore, GoI's ownership will ensure continued need-based support, given the bank’s significance to the domestic economy and financial system. |
Rating Sensitivity factors Downward factors
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About the Group SBI is the oldest and largest bank in India. As on September 30, 2021, GoI owned 56.92% of the bank’s equity capital. The SBI group offers a wide range of banking and non-banking products and services to its corporate and retail customers. It had 22,230 branches and 64,122 automated teller machines (ATMs) as on September 30, 2021. It has presence across the world. Through its non-banking subsidiaries and joint ventures, it offers a wide range of financial services, such as investment banking, credit cards, life insurance, general insurance, fund management, primary dealership, broking and factoring.
SBI, on consolidated basis, reported profit of Rs 22,405 crore in fiscal 2021, as against Rs 19,768 crore in fiscal 2020. Profit stood at Rs 16,670 crore for the first half of fiscal 2022, compared with Rs 10,607 crore for the corresponding period of the previous fiscal.
On standalone basis, SBI reported profit of Rs 20,410 crore in fiscal 2021, as against Rs 14,488 crore in fiscal 2020. Profit stood at Rs 14,131 crore for the first half of fiscal 2022 compared with Rs 8,764 crore for the corresponding period of the previous fiscal. |
Key Financial indicators (consolidated)
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Any other information: The SBI group’s return on assets (RoA) stood at 0.5% in fiscal 2021 (0.5% in fiscal 2020). Profitability has improved over the past two fiscals because of lower provision cost and proceeds from stake sale in subsidiaries. The group reported net interest margin (NIM) of 2.7% in fiscal 2021, higher than that of many other PSBs.
Note on complexity levels of the rated instrument: CRISIL Ratings complexity levels are assigned to various types of financial instruments. The CRISIL Ratings complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Note on tier I instruments (under Basel III) The distinguishing features of non-equity tier I capital instruments (under Basel III) are the existence of coupon discretion at all times, high capital thresholds for likely coupon non-payment and principal write-down (on breach of a pre-specified trigger). These features increase the risk attributes of non-equity tier I instruments over those of tier II instruments under Basel III and capital instruments under Basel II. To factor in these risks, CRISIL Ratings notches down the rating on these instruments from the bank's corporate credit rating. The rating on SBI’s tier-I bonds (under Basel III) has, therefore, been lowered by one notch from its corporate credit rating to 'CRISIL AA+/Stable’, in line with CRISIL Ratings’ criteria (refer to 'CRISIL Ratings’ rating criteria for BASEL III compliant instruments of banks').
The factors that could trigger a default event for non-equity tier I capital instruments (under Basel III) resulting in non-payment of coupon are: i) the bank exercising coupon discretion; ii) inadequacy of eligible reserves to honour coupon payment if the bank reports loss or low profit; or iii) the bank breaching the minimum regulatory common equity tier-1 (CET I; including capital conservation buffer) ratio. Moreover, given the additional risk attributes, the rating transition for non-equity tier I capital instruments (under Basel III) can potentially be higher and faster than that for tier II instruments.
Note on tier-II instruments (under Basel III) The distinguishing feature of tier II capital instruments under Basel II is the existence of the point of non-viability (PONV) trigger, the occurrence of which may result in loss of principal to investors, and hence, to default on the instrument by the issuer. According to the Basel III guidelines, the PONV trigger will be determined by the RBI. CRISIL Ratings believes the PONV trigger is a remote possibility in the Indian context, given the robust regulatory and supervisory framework and the systemic importance of the banking sector. The inherent risk associated with the PONV feature is adequately factored into the rating on the instrument.
Note on hybrid instruments (under Basel II) Given that hybrid capital instruments (tier I perpetual bonds and upper tier II bonds under Basel II) have characteristics that set them apart from lower tier II bonds (under Basel II), the ratings on the two instruments may not necessarily be identical. The factors that could trigger a default event for hybrid instruments include: the bank breaching the regulatory minimum capital requirement, or the regulator's denial of permission to the bank to make payments of interest and principal if the bank reports loss. Hence, the transition from one rating category to another may be significantly sharper for these instruments than for lower tier II bonds as debt servicing on hybrid instruments is far more sensitive to the bank's overall capital adequacy and profitability. |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Not yet issued
Annexure - Details of Rating Withdrawn
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Annexure – List of entities consolidated
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Criteria Details
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