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Moody's may upgrade SBI deposit rating

Our Bureau

MUMBAI, Dec. 12

THE international rating agency Moody's may upgrade the deposits rating of State Bank of India (SBI) from the current rating of Ba1/Not Prime.

The agency, on Wednesday, said it has placed the deposit ratings of nine banks in six countries (including SBI) on review for a possible upgrade to reflect a change in the rating methodology.

The new methodology takes into account the credit quality of banks in relation to the country's rating.

SBI's long-term deposits are currently assigned a Ba1 rating denoting ``questionable credit quality''. According to Moody's, ``Often, the ability of these banks to meet punctually their deposit obligations may be uncertain and, therefore, not well safegu arded in the future.''

The bank's short-term deposits currently have a ``Not Prime'' rating which indicates that ``the deposits offer questionable to poor credit quality and uncertain capacity for timely payment of short-term deposits.''

With regard to SBI, Moody's has said the bank commands a dominant role in the Indian banking system with around 20 per cent market share, while its closest peer banks have only five per cent.

``No Indian Government would be able to allow SBI to default on its local currency obligations,'' the agency said

``At the same time, the Government continues to provide support to its ailing financial institutions, although increasingly, this has not always been in a timely manner. The review of SBI's local currency deposit rating will focus on this issue of timeli ness and the likely mechanism of support.''

Officials in SBI said a possible upgrade in its deposit ratings would be a welcome move that would be beneficial if the bank decides to go in for an international listing.

Said one official: ``In future, if we need to raise funds through programmes such as the Resurgent India Bond or an IMD, an improved rating could help us get a better response.''

Explaining the newly revised methodology, Moody's said in the past, for assigning foreign currency bank ratings, the common practice was to rate the strongest banks at the ceiling and to notch downward from the ceiling for smaller and weaker names. Howev er, a recent global study of such ratings by the agency had shown that this ``ordinal scale'' approach had, in several cases, resulted in lower ratings for some banks than they would have received had the ceiling been higher.

In addition to SBI, banks Korea, Malaysia, the Philippines, Poland and Uruguay, have also been placed for review of their ratings, the agency said.