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SBI's gross non-performing loan (NPL) ratio rose sharply to 5.3 per cent (Rs 53,458 crore) in December 2012 from 3.28 per cent (Rs 25,326 crore) in March 2011. But, total stressed assets (NPLs and restructured assets) at 7.6 per cent remained comparable to other large peer government banks.
Incremental NPL's are likely to moderate in the near term. But, SBI is likely to continue to demonstrate greater cyclicality, given some of the policy roles it has performed. The restructuring in infrastructure assets is likely to gain momentum as the Reserve Bank of India's (RBI) draft guidelines on doing away with restructuring for non-infrastructure loans after FY15 come into effect.
On profitability and returns, the rating agency said SBI's profitability is average, despite having strong net interest margins (NIMs, 3.9 per cent in FY12), due to higher operating costs and volatile credit costs.
NIM was under pressure in FY13 due to tighter liquidity (increasing cost of funds) and lower yields on advances (due to interest reversals and higher growth in lower yield loans). Its provisioning for wage revision could have a four-basis point (year-on-year) negative impact on returns on assets (RoA). Its RoA in 2011-12 was 0.9 per cent.
India Ratings has also affirmed Punjab National Bank's long-term issuer rating at 'AAA' with a stable outlook and its short-term issuer rating at A1+.
"The ratings are driven by expectations of extraordinary support from its majority and controlling shareholder (the government holds 56 per cent stake), in case of a systemic crisis, due to its high importance," India Ratings said.
The rating is driven by SBI's competitive edge as the largest bank, with a strong funding profile, supported by a large pan-India branch network, higher income diversity than most other public sector banks, comfortable capitalisation and reasonable profitability.
