Shares of Indian banks fell on Tuesday after rating agency Moody’s cut its standalone rating of the country’s top lender, State Bank of India (SBI), citing its capital situation and deteriorating asset quality. SBI shares declined Rs 76.05, or four per cent, to Rs 1,786.70 on the Bombay Stock Exchange.
The exchange’s benchmark, the Sensex, declined 1.8 per cent to 15,864.86. Moody’s cut its standalone rating of SBI to D+ from C- earlier.
“We do not see any material impact (due to rating downgrade) on SBI's business, as around 95 per cent of SBI's business is domestic,” Deutsche Bank analysts said in a note to clients. “The rating downgrade could potentially have some impact on SBI's overseas borrowings, but these are just about five per cent of the total liabilities and to that extent, we see limited impact on overall cost of funds,” they added.
Analysts at ICICIdirect, an online broking arm of ICICI Securities, expect SBI’s near-term cost of funds to rise, particularly overseas borrowing rates. “These external borrowings, as on FY11, are just seven per cent of total funding liabilities i.e. deposits plus borrowings. Hence, we believe the event to be on account of facts already considered in valuation of the bank,” they said in a client note.
According to ICICIdirect analysts, near-term negative sentiments will see the under-performance of SBI shares continuing. However, they fell from a longer term perspective, these corrections can be considered for accumulating the stock, with a target of Rs 2,200. SBI’s rating downgrade hurt shares of other banking stocks. The BSE Bankex, which represents India’s 14 public and private sector banks, lost three per cent, the highest among all sectoral indices. All components of the index ended in red.
ICICI Bank lost 4.6 per cent to Rs 800.70, YES Bank gave up four per cent to Rs 251 and IDBI Bank fell 3.75 per cent to Rs 97.45.
“The asset quality of Indian banks is a bit of a concern, due to the worsening economic scenario. In the near term, banking stocks may remain under pressure due to global and local reasons,” said Vaibhav Agrawal, vice president – research, at Angel Broking. “However, Indian banks are safer than foreign banks and we are not seeing any systemic issue. Except SBI, the capital adequacy ratio of all other banks is quite comfortable and we don’t expect any similar rating cut in the case of other banks,” he added.