Fitch Rates State Bank of India's Proposed Senior Debt 'BBB-(EXP)'

Fitch Ratings has assigned State Bank of India's (SBI, BBB-/Stable) proposed senior unsecured debt an expected rating of 'BBB-(EXP)'.

The notes will constitute direct, unconditional, unsubordinated and unsecured obligations of the issuer. They will at all times rank pari passu among themselves and with all other unsubordinated and unsecured obligations of SBI.

The tenor of the issue is expected to be around five years and the notes are to be issued by SBI's London branch.

The final rating is subject to the receipt of final documentation conforming to information already received.

KEY RATING DRIVERS - SENIOR DEBT

The senior unsecured instruments are rated at the same level as the bank's Issuer Default Rating (IDR), in accordance with Fitch's criteria.

SBI's IDR is driven by its Support Rating Floor (SRF) of 'BBB-', which is at the same level as its Viability Rating (VR) of 'bbb-', implying that the bank's standalone credit strength also underpins the IDR. The SRF reflects Fitch's expectation of a high probability of extraordinary support from the government of India, if necessary, given the bank's very high systemic importance and quasi-sovereign status.

SBI's core capitalisation is set to improve in the financial year ending 31 March 2017 (FY17) from a core equity Tier 1 ratio of 10.3% at end-September 2016. The bank is likely to receive around USD835 million in new capital from the government shortly (of the total USD1.1 billion earmarked for FY17; around 5% of FY16 equity) and has plans to raise an additional USD2.2 billion directly from the market, for which it has received shareholder approvals. The bank's NPL ratio (7.1% at end-1HFY17) and stressed asset ratio (9.6%) have moderately picked up in 1HFY17, but they remain considerably lower than those of other large government banks.

RATING SENSITIVITIES - SENIOR DEBT

SBI's VR and SRF are at the same level as the IDR, which would only be downgraded if both the SRF and the VR were to be downgraded. A downgrade of India's sovereign rating will also trigger a downgrade of the bank's IDR as it is at the same level as the sovereign. Any change in the IDR will have a similar change on the proposed notes' rating.

SBI's other ratings are unchanged and are as follows:

- Long-Term IDR at 'BBB-'; Outlook Stable

- Short-Term IDR at F3'

- Viability Rating at 'bbb-'

- Support Rating at '2'

- Support Rating Floor at 'BBB-'

- USD10bn medium-term note programme at 'BBB-'

- USD3.5bn senior unsecured notes at 'BBB-'

- USD400m perpetual Tier 1 bonds at 'B'

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