Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA+/Stable’ rating to the Rs 5,000 crore Tier I Bonds under Basel III of State Bank of India (SBI; part of the SBI group) and has reaffirmed its 'CRISIL AAA/CRISIL AA+/Stable/CRISIL A1+' ratings on the other debt instruments.

 

The ratings continue to centrally factor in the SBI group’s dominant market position in the Indian banking industry, strong resource profile and adequate capitalisation. The ratings also factor in the continued strong support that the bank is likely to receive from its majority owner, Government of India (GoI), both on an ongoing basis and in the event of distress. These strengths are partially offset by the average asset quality of the group

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of SBI and its subsidiaries, collectively referred to as the SBI group, as the subsidiaries are an integral part of SBI’s growth strategy. The ratings also factor in the strong support that the bank is expected to receive from GoI, both on an ongoing basis and in the event of distress.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong expectation of support from GoI

The ratings continue to factor in the strong support expected from GoI, both on an ongoing basis and in the event of distress, given that GoI is the majority shareholder in public sector banks (PSBs) and the guardian of India's financial system. Stability of the banking sector is of prime importance to GoI, considering its criticality to the economy, the strong public perception of sovereign backing for PSBs and the adverse implications of a PSB failure in terms of a political fallout, systemic stability and investor confidence. CRISIL Ratings believes the majority ownership creates a moral obligation on GoI to support PSBs, including SBI.

 

GoI through its Indradhanush framework, the recapitalization package and budget allocations has demonstrated its strong backing to PSBs. SBI had received Rs 8,800 crore in fiscal 2018 from GoI.

 

• Dominant market position in the Indian banking industry

The SBI group is the largest player in the banking sector in India, with domestic market share of 22.55% in deposits and 19.06% in advances as on March 31, 2024. On consolidated basis, SBI had advances and deposits of Rs 37,84,273 crore and Rs 49,66,537 crore, respectively, as on March 31, 2024 (Rs 32,67,902 crore and Rs 44,68,535 crore, respectively, as on March 31, 2023).  The group's robust brand, pan-India presence and wide reach in rural and semi-urban areas have resulted in diversified advances book and large and stable deposit base. In addition to its strong presence in corporate finance, the bank is a leader in the retail finance segment; it also offers other financial services such as investment banking and life insurance. The SBI group also has wide presence in overseas markets.

 

• Strong resource profile

A large and diversified deposit base lends stability to the group’s resource profile, which is backed by a healthy proportion of low-cost current account and savings account (CASA) deposits. Low-cost CASA deposits have remained above 40% over the past few years and accounted for above ~41.11% of total deposits (excluding foreign deposits) as on March 31, 2024. The high proportion of CASA deposits helps the group to maintain its cost of deposits (CoD) at competitive level; CoD was 4.81% in FY24.

 

• Adequate capitalisation

SBI (standalone) had adequate capitalisation, indicated by tier-I and overall capital adequacy ratios (CAR; under Basel III) of 11.93% and 14.28%, respectively, as on March 31, 2024 (12.1% and 14.7%, respectively, as on March 31, 2023). The bank received equity infusion of Rs 5,681 crore and Rs 8,800 crore from GoI in fiscals 2017 and 2018, respectively. Furthermore, it raised equity capital of Rs 15,000 crore through qualified institutional placements (QIPs) in June 2017. It also has the flexibility to raise additional capital through stake sale in its subsidiaries. Capital position benefitted from proceeds of Rs   6,215 crore [pre-tax(consolidated)] in fiscal 2020 through stake sale in SBI Life Insurance Company Ltd (SBI Life) and SBI Cards and Payment Services Ltd. In fiscal 2021, the company earned Rs 1,540 crore through stake sale in SBI Life.

 

However, given its large scale of operations, the SBI group will need to maintain adequate buffers to support growth and meet capital requirement as per Basel III guidelines. CRISIL Ratings believes GoI will continue to support SBI's capital requirement, considering its stature as India’s largest PSB. Also, GoI held 56.92% stake in the bank as on March 31, 2024, providing flexibility to the bank to raise capital by diluting GoI's stake.

 

Weakness:

• Average, albeit improving asset quality

Asset quality remained average, though it has improved over the past couple of years, driven by higher recoveries and write-offs. SBI's standalone gross non-performing assets (GNPAs) improved to 2.24% as on March 31, 2024, compared with 2.78% and 3.97% as on March 31, 2023 and March 31, 2022. In the past, GNPAs were sizeable owing to pressure on asset quality primarily in the large and mid-corporate loan books; however, it is moderating. Slippages to opening advances stood at 0.62% for fiscal 2024 (0.65% in fiscal 2023, and 0.99% in fiscal 2022). Under the various schemes announced by the RBI dated January 1, 2019, February 11, 2020, August 6, 2020, and May 5, 2021, the bank had outstanding restructured portfolio of Rs 17,279 crore (0.5% of gross advances) as on March 31, 2024.

 

Overall asset quality will likely remain average over the medium term as the bank will continue to cater to customers of varying credit quality and to a variety of sectors.

Liquidity: Superior

The bank has a sizeable retail deposit base. Liquidity coverage ratio (consolidated) stood at 130.62% as on March 31, 2024. It also has access to systemic sources of funds, including the liquidity adjustment facility from the RBI, the call money market and the refinance limits from apex bodies such as National Housing Bank and National Bank for Agriculture and Rural Development.

 

ESG profile

CRISIL Ratings believes that SBI’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The ESG profile for financial sector entities typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment.

 

SBI has an ongoing focus on strengthening various aspects of its ESG profile.

 

SBI’s key ESG highlights:

• SBI has partnered with international banks and funding agencies, which provide lines of credit, that the bank uses to fund projects with positive environmental and social impacts. The bank has put in place a Renewable Energy Policy and over Rs 36,243.42 crore ason March 31, 2023 has been sanctioned for renewable energy by the bank under this.

 

• The bank aims to become carbon neutral by fiscal 2030. In this regard, it has proposed various initiatives to reduce its carbon impact, including planned investments in renewable energy projects, plantation of trees, organic farming and banning the use of single-use plastic on campus.

 

• Of the total workforce, around 26.94% comprised of women as on March 31, 2023. Further, the bank has taken initiatives to promote gender equity within the organization.

 

• Majority of the board members are independent directors, and none of them have tenure exceeding 10 years.  The bank also has a dedicated investor grievance redressal mechanism. The disclosures put out by the bank are extensive.

 

There is growing importance of ESG among investors and lenders. SBI’s commitment to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes the SBI group will maintain its dominant position in the financial services sector in India and strong resource profile over the medium term. Furthermore, GoI's ownership will ensure continued need-based support, given the bank’s significance to the domestic economy and financial system.

Rating sensitivity factors

Downward factors

• Material change in expectation of support from GoI
• Significant and continuous increase in delinquencies (GNPAs crossing 10%), leading to decline in profitability

About the Company

SBI is the oldest and largest bank in India. As on March 31, 2024, GoI owned  56.92% of the bank’s equity capital. The SBI group offers a wide range of banking and non-banking products and services to its corporate and retail customers. The bank had 22,542 branches and 63,580 automated teller machines (ATMs) as on March 31, 2024. It has presence across the world. Through its non-banking subsidiaries and joint ventures, it offers a wide range of financial services, such as investment banking, credit cards, life insurance, general insurance, fund management, primary dealership, broking and factoring.

 

SBI, on a consolidated basis, reported profit of Rs 67,085 crore in fiscal 2024 as against Rs 55,648 crore in fiscal 2023.

 

On standalone basis, SBI reported profit of Rs 61,077 in fiscal 2024 as against Rs 50,232 crore in fiscal 2023.

Any other information: Not Applicable

 

Note on tier I instruments (under Basel III)

The distinguishing features of non-equity tier I capital instruments (under Basel III) are the existence of coupon discretion at all times, high capital thresholds for likely coupon non-payment and principal write-down (on breach of a pre-specified trigger). These features increase the risk attributes of non-equity tier I instruments over those of tier II instruments under Basel III and capital instruments under Basel II. To factor in these risks, CRISIL Ratings notches down the rating on these instruments from the bank's corporate credit rating. The rating on SBI’s tier-I bonds (under Basel III) has, therefore, been lowered by one notch from its corporate credit rating to 'CRISIL AA+/Stable’, in line with CRISIL Ratings’ criteria (refer to 'CRISIL Ratings’ rating criteria for BASEL III compliant instruments of banks').

 

The factors that could trigger a default event for non-equity tier I capital instruments (under Basel III) resulting in non-payment of coupon are: i) the bank exercising coupon discretion; ii) inadequacy of eligible reserves to honor coupon payment if the bank reports loss or low profit; or iii) the bank breaching the minimum regulatory common equity tier-1 (CET I; including capital conservation buffer) ratio. Moreover, given the additional risk attributes, the rating transition for non-equity tier I capital instruments (under Basel III) can potentially be higher and faster than that for tier II instruments.

 

Note on tier-II instruments (under Basel III)

The distinguishing feature of tier II capital instruments under Basel II is the existence of the point of non-viability (PONV) trigger, the occurrence of which may result in loss of principal to investors, and hence, to default on the instrument by the issuer. According to the Basel III guidelines, the PONV trigger will be determined by the RBI. CRISIL Ratings believes the PONV trigger is a remote possibility in the Indian context, given the robust regulatory and supervisory framework and the systemic importance of the banking sector. The inherent risk associated with the PONV feature is adequately factored into the rating on the instrument.

 

Note on hybrid instruments (under Basel II)

Given that hybrid capital instruments (tier I perpetual bonds and upper tier II bonds under Basel II) have characteristics that set them apart from lower tier II bonds (under Basel II), the ratings on the two instruments may not necessarily be identical. The factors that could trigger a default event for hybrid instruments include: the bank breaching the regulatory minimum capital requirement, or the regulator's denial of permission to the bank to make payments of interest and principal if the bank reports loss. Hence, the transition from one rating category to another may be significantly sharper for these instruments than for lower tier II bonds as debt servicing on hybrid instruments is far more sensitive to the bank's overall capital adequacy and profitability.

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
SBI Capital Markets Ltd	Full	Subsidiary
SBICAP Securities Ltd	Full	Subsidiary
SBICAP Trustee Company Ltd	Full	Subsidiary
SBICAP Ventures Ltd	Full	Subsidiary
SBICAP (Singapore) Ltd	Full	Subsidiary
SBI DFHI Ltd	Proportionate	Subsidiary
SBI Global Factors Ltd	Proportionate	Subsidiary
SBI Infra Management Solutions Pvt Ltd	Full	Subsidiary
SBI Mutual Fund Trustee Company Pvt Ltd	Full	Subsidiary
SBI Payment Services Pvt Ltd	Proportionate	Subsidiary
SBI Pension Funds Pvt Ltd	Proportionate	Subsidiary
SBI Life Insurance Company Ltd	Proportionate	Subsidiary
SBI General Insurance Company Ltd	Proportionate	Subsidiary
SBI Cards and Payment Services Ltd	Proportionate	Subsidiary
SBI-SG Global Securities Services Pvt Ltd	Proportionate	Subsidiary
SBI Funds Management Pvt Ltd	Proportionate	Subsidiary
SBI Funds Management (International) Pvt Ltd	Proportionate	Subsidiary
Commercial Indo Bank Llc, Moscow	Proportionate	Subsidiary
SBI Canada Bank	Full	Subsidiary
State Bank of India (California)	Full	Subsidiary
State Bank of India (UK) Ltd	Full	Subsidiary
State Bank of India Servicos Limitada	Full	Subsidiary
SBI (Mauritius) Ltd	Proportionate	Subsidiary
PT Bank SBI Indonesia	Proportionate	Subsidiary
Nepal SBI Bank Ltd	Proportionate	Subsidiary
Nepal SBI Merchant Banking Ltd	Proportionate	Subsidiary
C - Edge Technologies Ltd	Proportionate	Joint venture
SBI Macquarie Infrastructure Management Pvt Ltd	Proportionate	Joint venture
SBI Macquarie Infrastructure Trustee Pvt Ltd	Proportionate	Joint venture
Macquarie SBI Infrastructure Management Pte Ltd	Proportionate	Joint venture
Macquarie SBI Infrastructure Trustee Ltd	Proportionate	Joint venture
Oman India Joint Investment Fund - Management Company Pvt Ltd	Proportionate	Joint venture
Oman India Joint Investment Fund - Trustee Company Pvt Ltd	Proportionate	Joint venture
Jio Payments Bank Ltd	Proportionate	Joint venture