Ind-Ra assigns stable rating on State Bank of Patiala’s Rs 115 crore bonds

Mumbai: Ratings and Research (Ind-Ra) has rated State Bank of Patiala’s (SBP) Basel III Tier I bonds as stable but added that any delay in the merger process with State Bank of India is likely to trigger a rating review.

SBP, founded in 1917, is an associate bank of SBI and has a network of over 1,300 branches.

“The rating reflects SBP’s standalone credit profile, factoring in the impending merger with State Bank of India (SBI; ‘IND AAA’/Stable) effective 1 April 2017, along with its ability to service coupons and manage principal write-down risk over the Basel III transition period. Ind-Ra recognises that government support may not be relied upon by the holders of these AT1 bonds during a crisis, as it could be prioritised for depositors. For AT1 instruments, the agency considers discretionary component, coupon omission risk and write-down/conversion risk as key parameters to arrive at the rating. The agency recognises the unique going-concern loss absorption features that these bonds carry and differentiates them from the bank’s senior debt, factoring in a higher probability of an ultimate loss for investors in these bonds,” Ind-Ra said in a research report.

Apart from any unforeseen delay in the merger, SBP’s standalone profile will mirror SBI April 2017 onward, which has maintained a quasi-sovereign status and the highest systemic importance among all Indian banks. The government owns a majority stake in SBI (61.18% at end-December 2016). SBP’s standalone credit profile is stronger than those of other similar sized government-owned banks, reflecting implicit support from SBI. While SBI (standalone) constituted nearly 19.36% of the banking system’s total advances at FYE16, the consolidated entity accounts for nearly 24.38% of the system’s total advances. SBI’s standalone credit profile is stronger than most government-owned public sector banks, the research report added.