State Bank of India rating unaffected: S&P

Standard & Poor's Ratings Services said that its rating on State Bank of India (SBI; BBB-/Stable/A-3) was not affected by the bank's significant underperformance in fiscal year 2011 that ended March 31.

Also read: SBI's operational numbers are disappointing: Macquarie

The agency believes that SBI's strong market position in India, sound funding and liquidity profile, and adequate though pressured loan quality will continue to underpin the bank's standalone credit profile. It also expects that SBI will get substantial extraordinary support from government of India (BBB-/Stable/A-3) in a distress situation because of the bank's systemic importance.

SBI's financial metrics remain comparable to other banks with a similar rating. The angency expects SBI's profitability to remain modest as we expect the bank's credit costs to stay high. That said, SBI's NPA ratio is likely to remain largely stable in the next 12 months in view of its proactive management of distressed assets, and India's robust economic growth.

SBI's worse-than-expected performance was mainly due to a sharp rise in credit costs and pension-related provisions in the fourth quarter of fiscal year 2011. Fresh slippage in nonperforming assets in the quarter, coupled with tightened regulatory norms on loan loss provision, resulted in the bank's high credit provisions. Besides pension-related costs, SBI also made an adjustment to its pension liabilities via direct charge of Indian rupee (INR) 79 billion against its capital base. The low internal accrual, high pension charges, and continued strong asset growth contributed to a significant drop in SBI's capital ratios.