Rating agency Moody’s have downgraded stand-alone rating of State Bank of India to D+ from C- on the back of its modest capital, weakening asset quality and lower baseline credit assessment of Baa3 level. The public sector bank SBI’s NPA stood at 3.52% of its assets as of June 2011.

The surprise cut in the bank’s financial strength rating was prompted by SBI’s higher gross non-performing assets, bank’s capital situation and pressure on tier-I capital ratio providing insufficient cushion to support growth and deteriorating asset quality.

Moreover, given the recent spate of interest rates hikes and aggressive lending by the bankers, the asset quality is likely to deteriorate as borrowers lose power to service their costly debts, leading to more of non-performing loans.

Adding to the woes is stubborn inflation, which has led RBI to hike interest rates on multiple occasions in its monetary policies. Currently, SBI enjoys a huge market share in the Indian banking industry with major operations concentrated domestically.

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2 Responses to Are Indian Banks losing their safety tag?

  1. All the factors mentioned are valid ones. However the effect of those factors will be only on profits of SBI and consequently on stock price only.
    The money put in SBI by people is as safe as it is in their own pockets.

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