Rating Rationale

Strengths:
* Strong expectation of support from GoI
The ratings continue to factor in 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 adverse implications of any PSB failure, in terms of a political fallout, systemic stability, and investor confidence. CRISIL 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 each was infused in fiscals 2016 and 2017. Further, in October 2017, the government had outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019, and has 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 Indian banking sector, with a market share of ~23% and ~20% in overall deposits and advances, respectively, as on March 31, 2020. On a consolidated basis, SBI had net advances and deposits of Rs 23,47,478 crore and Rs 34,53,116 crore, respectively, as on June 30, 2020 (Rs 23,74,311 crore and Rs 32,74,161 crore, respectively, as on March 31, 2020). The group's solid brand image, pan-India presence, and wide reach in rural and semi-urban areas have resulted in a diversified advances book and a large and stable deposit base. In addition to its strong presence in corporate finance, the bank is a leader in the retail finance segment, and also offers other financial services such as investment banking and life insurance. The SBI group also has wide presence in international markets.

* Strong resource profile
The SBI group's large and diversified deposit base lends stability to its strong resource profile, which is backed by a healthy proportion of low-cost current account and savings account (CASA) deposits. The group has maintained a high level of low-cost CASA deposits, at above 40%, over the past few years. CASA deposits accounted for 45.3% of total deposits (excluding foreign deposits) as on June 30, 2020. The proportion, which significantly exceeds the industry average, helps the SBI group maintain its cost of deposits (CoD) at a manageable level. CoD was below the industry average, at ~5.0% (annualised) during fiscal 2020.

* Adequate capitalisation
SBI (standalone) has adequate capitalisation, indicated by Tier-I and overall capital adequacy ratio (CAR; under Basel III) of 11.35% and 13.40%, respectively, as on June 30, 2020 (11.33% and 13.06%, respectively, as on March 31, 2020). SBI received equity infusion of Rs 8,800 crore and Rs 5,681 crore from GoI in fiscals 2018 and 2017, respectively. Furthermore, the bank raised equity capital of Rs 15,000 crore through the qualified institutional placement (QIP) route in June 2017. SBI also has flexibility to raise additional capital through stake sale in its subsidiaries. The bank's capital levels were further benefitted by proceeds of Rs.5782 crore [pre-tax(consolidated) in fiscal 2020, received through stake sale in SBI Life Insurance Company Ltd (SBI Life) and SBI Cards and Payment Services Ltd (SBI Cards). Further, in the first quarter of fiscal 2021, the company earned Rs 1540 crore via stake sale in SBI Life.

However, given its large scale of operations, the SBI group will continue to need steady capital infusion to support growth and meet capital requirements, as per Basel III guidelines. CRISIL believes GoI will continue to support SBI's capital requirement, considering its stature as India's largest PSB. Also, GoI held 56.92% ownership in the bank as on June 30, 2020, providing flexibility to the bank to raise capital by diluting GoI's stake.

Weaknesses:
* Modest asset quality
Asset quality has been modest for the SBI group, though it has improved over the last couple of years, aided by higher recoveries and write-offs. This is reflected in SBI's standalone gross non-performing assets (NPAs) of 5.44% as on June 30, 2020 (6.15% as of March 31, 2020, and 7.53% as on March 31, 2019). High level of gross NPAs was largely due to pressure on asset quality, mainly in the large- and mid-corporate loan book (including books of associate banks merged with SBI), given the challenging macroeconomic environment. In fiscal 2020, overall slippages increased to 2.2%, from 1.6% in fiscal 2019, mainly led by few large accounts. Overall asset quality is likely to remain modest over the medium term, as SBI will continue to cater to customers of varying credit quality, and to a variety of sectors. Also, ability to manage asset quality performance, in the ongoing scenario, remains a key monitorable.