ICRA reaffirms SBI instrument's rating

THE INVESTMENT Information and Credit Rating Agency (ICRA) has reaffirmed the LAAA rating to the Rs. 1,000 crore long term unsecured subordinated bonds of State Bank of India (SBI). The rating indicates highest safety and a fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualised, are not likely to affect the timely payment of principal and interest as per terms.

The rating agency has also reaffirmed the A1 plus rating to the Certificate of Deposits programme of the bank.

The rating indicates highest rating. The prospect of timely payment of debt/ obligation is the best.

SBI is the largest bank in India in terms of balance sheet size and branch network. Net advances of the bank increased from Rs. 82,360 crores in 1998-99 to Rs. 98,102 crores in 1999-2000 registering a 19 per cent growth.

The growth has come from the commercial, industrial and personal finance segments.

The bank has also taken fresh exposures in infrastructure related projects mainly in power, ports, roads and oil and gas during 1999-2000.

Deposits of the bank grew from Rs. 169,042 crores in 1998-99 to Rs. 196,821 crores in 1999-2000 registering a growth of 16.50 per cent. Subsequently, it also mobilised around $5.5 billion (about Rs. 25,000 crores) by way of India Millennium Deposits (IMD) in October/November 2000. The rating agency expects SBI to maintain its deposit and credit growth in tune with the industry on account of its widespread branch network and good corporate relationships.

The net interest margin as a percentage of average total assets (ATA) for the bank declined from 3.02 per cent in 1998-99 to 2.86 per cent in 1999-2000. Despite a drop in yield on advances and investments and a reduction in non-interest income/ ATA during the year, operating profits as a percentage of ATA increased marginally from 1.72 per cent in 1998-99 to 1.74 per cent in 1999-2000. This was due to a decrease in operating expenses /ATA from 2.93 per cent to 2.6 per cent. The profit, after taxation, as a percentage of ATA increased from 0.51 per cent to 0.85 per cent during the same period.

This was also due to lower provisioning on NPAs and writeback of provision on depreciation of investments.

SBI had reduced its net NPA from 7.18 per cent as on March 31, 1999 to 6.41 per cent as on March 31, 2000. This was on account of substantial provisions and write-offs that the bank has made over the years. In the short and medium terms, ICRA expects the NPA levels to increase on account of the bank's exposures in the past to some vulnerable mid and small sized companies in the priority sector. Hence the bank's ability to contain generation of NPAs would be crucial.

However, based on conservative estimates, the bank is expected to be in a comfortable position to provide for its fresh NPAs. In the long term, the rating agency expects the interest spread in the banking sector to come down on account of increased competition. Hence, the ability to increase non-interest income and control expenses would be crucial for increased profitability.

The rating takes into account the continued strong performance of the bank, improved asset quality, reduction in the generation of NPAs, increased recoveries and a strong growth in credit and deposits.

The rating also takes into account the dominant presence of the bank in the financial system and sovereign ownership.

Corporate Bureau

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