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Moody's downgrade SBI to D+

October 4, 2011‐ Mumbai

The India's Number one bank - the State Bank of India (SBI) credit rating has been downgraded from C- to D+ by the most respected global credit rating agency, the Moody's. The agency says that the bank had modest capital and the asset quality is weakening.

However, SBI Chairman Pratip Chaudhuri appears to be cool. He defends saying that the rating cut is only for a small segment of the debt instrument (perpetual tier-1) and not to the overall rating of the bank which stands one notch above the sovereign. He says that the USD 5 billion strong medium-term note is continuing to have a strong rating. The Chairman said that the Government has asked the bank for the reasons for the downgrade.

The Bank is expecting a capital infusion from the Government, the dates of which is still unclear. The bank expects the funds to become available by December 2011 or March 2012. Once that is done, the bank would be ready with a 9% capital adequacy by March 2012. The bank is expecting that the Government will give a tier-1 injection ranging from a minimum of Rs. 3000 crores to a maximum of Rs. 12000 crores.

The going for SBI in the international debt market will be impacted due to the downgrade. The bank says that the downgrade in the tier-1 debt instruments will be a small reason amidst the larger global interest rate environment to be the reason in case the cost of debt increases for the bank going forward.

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