Why moody downgraded sbi

In their note on sovereign rating downgrade, Moody's had highlighted rising stress in the financial system, pressure on asset quality of banks and non-banks, among other issues. Prolonged slowdown in the economy could hamper the financial system, said Moody's.

So, these rating actions are not surprising. Also, the agency has placed the long-term local and foreign currency deposit ratings of Bank of Baroda, Bank of India, Canara Bank and Union Bank of India under review for downgrade. Further, Moody's has also affirmed PNB's long-term local and foreign currency deposit ratings. The rating outlook of Punjab National Bank is changed to stable from positive.

And finally, in the case of Central Bank of India and Indian Overseas Bank, Moody's has affirmed their long-term local and foreign currency deposit ratings.

Moody's noted that the Indian banking sector has been affected given the disruptions to India's economic activity from the coronavirus outbreak, which is weakening borrowers' credit profiles. Moody's regards the coronavirus outbreak as a social risk under its environmental, social and governance ESG framework, given the substantial implications for public health and safety.

Disruptions from the coronavirus outbreak will worsen the economic slowdown in India that has been underway in the past year and will accelerate a deterioration in the banks' asset quality and profitability. Moody's said it expects SBI to restructure loans once the loan deferment period ends. However, it noted that the uncertainty around India's economic slowdown makes it difficult to estimate what portion of restructured loans will eventually turn into non-performing loans.

The agency also stated that SBI's capitalisation will remain lower than similarly rated global peers. SBI's ratings are unlikely to be upgraded in the next months, considering the negative outlook. The rating outlook could be changed to stable if India's rating outlook is changed to stable. The reverse of this also possible, the agency noted. Moody's could also downgrade SBI's BCA if there is a material decline in capital because of a strain on asset quality and profitability beyond Moody's current expectations," the agency said.

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