S&P cuts ratings of SBI, Union Bank on concerns over asset quality

MUMBAI: Ratings firm Standard and Poor's has lowered the standalone rating of the country's largest lender State Bank of India and Union Bank on concerns over their asset quality.

The ratings firm revised the standalone credit profile (SACP) of SBI to 'bbb-' from 'bbb' and that of UBI to 'bb+' from 'bbb-' based on their anticipation of the banks' weak asset quality performance.

"We revised the SACPs of SBI and UBI because we expect the banks' asset quality to remain weak and credit costs to stay high," said a release by Standard and Poor's. The ratings firm has revised its risk position assessment on these banks to "moderate" from "adequate".

It expects SBI's and UBI's asset quality to remain stressed in the fiscal years ending March 31, 2013, and 2014, partly due to continued slippages in their restructured loan books.

SBI's gross non-performing loan (NPL) ratio of 5% (on a standalone basis) as of June 30, 2012, is the highest among the Indian banks that S&P's rates. Mid-corporate (NPL: 9.3%) and agriculture (NPL: 9.8%) portfolios are particularly stressed.

NPLs in UBI's agriculture portfolio have also surged. The bank's SACP is in a speculative-grade category. Moreover, it has asset concentration in its infrastructure portfolio, especially in the power sector, which is facing challenges, such as fuel shortages, delays in securing environmental clearances, and a slow pace of tariff reforms.

However, the ratings firm affirmed its 'BBB-' long-term, a negative outlook rating and 'A-3' short-term issuer credit ratings on seven PSU banks in India.