Source :BL :Mumbai, Oct. 4: 2011
Rating agency Moody's on Tuesday downgraded the country's largest bank State Bank of India sending the bank's stock plunging to a two-year low This unnerved the broader market, already in a bear grip, and the benchmark Sensex sank below16,000.
Moody's cited the bank's capital situation and deteriorating asset quality as concerns. The bank's standalone rating, also called the Bank Financial Strength Rating (BFSR), was downgraded from ‘C-' to ‘D+'.
“Our expectations that non-performing assets (of SBI) are likely to continue rising in the near term — due to higher interest rates and a slower economy — have caused us to adopt a negative view on SBI's creditworthiness,” said Ms Beatrice Woo, Vice-President and Senior Credit Officer, Moody's.
Reacting, the Chairman of State Bank of India, Mr Pratip Chaudhuri said: “A rating of ‘D+' is still investment grade. Bank of Baroda, Punjab National Bank and Bank of India are also at ‘D+'. We were the only exception so far. The present rating is the same as that of the Government of India.''
As of June 30, 2011, SBI's tier-I capital ratio was 7.6 per cent, which is lower than the regulatory requirement of 8 per cent. “The level pushes the bank into a lower rating band,” said the statement from Moody's.
“Such a level for its (SBI's) tier-1 capital ratio provides an insufficient cushion to support growth and to absorb potentially higher credit costs from its deteriorating asset quality,'' Moody's said.
While a capital infusion by the government would restore SBI's capital ratio, the bank's efforts to secure this capital for the better part of the year demonstrate its limited ability to manage its capital, the report added. The downgrade triggered a steep intra-day fall across bourses: the Nifty and the Sensex ended the day lower by 1.6 and 1.77 per cent respectively.
The Nifty shed 77 points to close at 4772.15 while the Sensex lost 286.59 points to close at 15864.86. At around 1 p.m., when news of the downgrade hit the market, the SBI stock fell vertically, recovering only marginally from the day's low of Rs 1751.35 to a share to close at Rs 1,787.2.
Experts view this sell-off as a pretext by short-sellers to make money.
“The sentiment was already so bad that short sellers were waiting to hammer stocks at the slightest hint of bad news,” said Mr Kishor Ostwal, CMD, CNI Research.
“They did it to JSW and RIL and today it was SBI. Where were they when SBI had started correcting from 3,500-levels?
“Moody's using the same yardstick that it uses for US or European banks is not right as the RBI would never allow a gross NPA level of 12.07 per cent (that they have assumed under a stress scenario) for SBI.”
Chartists said that the stock had neared its long-term support levels when it touched its two-year low.
“Taking a fresh long-term bearish view on SBI is difficult though traders will have ample opportunities to exploit both daily and weekly bounce backs,” said Mr Rakesh Gandhi, Technical Analyst, LKP Securities.
On Tuesday, FIIs sold net equity worth Rs 971crore while domestic institutions bought net equity worth Rs 556 crore. Retail investors on the BSE were net buyers for Rs 50 crore.
All the indices on the BSE and NSE were in the red. Volatility was up six per cent on Tuesday closing at 37.19 (up 2.12 points).
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