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 is 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. GoI infused Rs 5,681 crore and Rs 8,800 crore in fiscal 2017 and fiscal 2018, respectively, in SBI.

* 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 22.38% and 20.09% in the banking system's deposits and advances, respectively, as on March 31, 2019. SBI had consolidated advances and consolidated deposits of Rs 21,91,839 crore and Rs 30,64,307 crore, respectively, as on September 30, 2019 (Rs 22,26,854 crore and Rs 29,40,541 crore, respectively, as on March 31, 2019). The group's solid brand image, pan-India presence, and wide reach in rural and semi-urban areas result 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 has strong presence in other financial services segments 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 maintained high level of low-cost CASA deposits, at above 40%, over the past few years. CASA deposits accounted for 45.1% of total deposits (excluding foreign deposits) as on September 30, 2019. The proportion remains significantly above the industry average which helps the SBI group maintain its cost of deposits (CoD) at a manageable level. CoD was 5.1% (annualised) during fiscal 2019 and was lower than the industry average.

* Adequate capitalisation
SBI (standalone) has adequate capitalisation, indicated by Tier-I and overall capital adequacy ratio (CAR; under Basel III) of 11.31% and 13.59%, respectively, as on September 30, 2019 (10.65% and 12.72%, respectively, as on March 31, 2019). 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. 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 the Basel III guidelines. CRISIL believes GoI will continue to support SBI's capital requirement, given the bank's importance to India's economy and the financial system as it is the largest PSB in the country. Also, GoI held 57.88% ownership (excluding global depository receipts) in the bank as on September 30, 2019, providing flexibility to the bank to raise capital by diluting GoI's stake.

Weaknesses:
* Modest asset quality
The SBI group has modest asset quality, which has deteriorated in the past few years. This is reflected in SBI's standalone gross non-performing assets (NPAs) of 7.19% as on September 30, 2019 (7.53% as of March 31, 2019). The high level of gross NPAs was mainly on account of pressure on asset quality, mainly in the large- and mid-corporate loan book, including that of associate banks now merged with SBI, given the challenging macroeconomic environment. However, in fiscal 2019, asset quality improved and slippage ratio stood at 1.60% in fiscal 2019, down from 4.85% in fiscal 2018. The pace of slippages to NPAs is expected to reduce as the bank has recognised bulk of the stressed assets in its corporate exposure. Its ability to improve resolution and recovery and asset quality performance in the agriculture and MSME (micro, small, and medium enterprises) sectors will remain a key monitorable. The SBI group's asset quality will remain modest over the medium term because, as India's largest bank, SBI will remain exposed to customers of varying credit quality and to a variety of sectors.