Rating Rationale

Strengths
* Strong expectation of support from GoI
The rating continues to factor in an expectation of strong government support, both on an ongoing basis and in the event of distress. This is because GoI is both the majority shareholder in public sector banks (PSBs) and the guardian of India's financial system. The stability of the banking sector is of prime importance to GoI, given the criticality of the sector to the economy, the strong public perception of sovereign backing for PSBs, and the severe implications of any PSB failure in terms of political fallout, systemic stability, and investor confidence in public sector institutions. CRISIL believes that the majority ownership creates a moral obligation on GoI to support the PSBs, including SBI. As part of the 'Indradhanush' framework, government has pledged to infuse at least Rs 70,000 crore in PSBs during fiscals 2015-19, of which Rs 25,000 crore each was infused in fiscals 2016 and 2017. Further, in October 2017, the government had outlined recapitalisation package of Rs 2.11 lakh crores over fiscals 2018 and 2019, out of which PSBs will receive Rs 88,139 crore from the government in fiscal 2018. SBI has been allocated Rs 8800 crore out of this in last fiscal.

* Dominant market position in Indian banking industry
The SBI group is the largest player in the Indian banking sector, with a market share of 23% and 20% in the banking system's deposits and advances, respectively, as on March 30, 2018. SBI had consolidated advances and consolidated deposits of around Rs 19,60,118 crore and Rs 27,22,178 crore, respectively, as on March 31, 2018 (Rs 18,96,887 crore and Rs 25,99,811 crore, respectively, as on March 31, 2017). As on June 30, 2018, the consolidated advances were Rs 19,12,596 crore. 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 well-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 45.07% of total deposits (excluding foreign deposits), as on June 30, 2018. The proportion remains significantly above the industry average which helps the SBI group in maintaining its cost of deposits (CoD) at a manageable level. CoD, was 5.11% (annualised) during the three months ended June 30, 2018 and was lower than the industry average.

* Adequate capitalisation
The SBI (Consolidated) has adequate capitalisation, indicated by a Tier-I and overall capital adequacy ratio (CAR; under Basel III) of 10.70% and 12.94%, respectively, as on June 30, 2018 (10.53% and 12.72%, respectively, as on March 31, 2018). SBI has received equity infusion of Rs 5,681 crore from GoI in fiscal 2017. 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 infusions 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 its importance to India's economy and the financial system as it is the largest PSB in the country. Also, GoI held 58.5% ownership (excluding global depository receipts) in the bank as on June 30, 2018 providing flexibility to the bank to raise capital by diluting GoI's stake.

Weakness
* Modest asset quality
The SBI group has modest asset quality, which has deteriorated over the past few years. This is reflected in the increase in SBI's (consolidated) gross non-performing assets (NPAs) to 9.75% as on September 30, 2017 from 9.04% as on March 31, 2017, and 6.5% as on March 31, 2016. 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. Slippage ratio stood at 5.78% in fiscal 2017, mainly due to high slippages in the associate banks. Slippage ratio for the first half of fiscal 2018 was 3.61% (annualised). The bank's outstanding restructured standard advances (RSAs) declined in fiscal 2017 as slippages from RSAs remained high over the past few quarters. While 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 sector 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 is likely to remain exposed to customers of varying credit quality, and to a variety of sectors.