SBI stock sinks on Moody's downgrade

Shares of State Bank of India (SBI) took a pounding on October 4 after Moody’s Investor Service downgraded SBI's standalone rating, citing its modest capital and weakening asset quality. "Our expectations that non-performing assets are likely to continue rising in the near-term - due to higher rates and a slower economy - have caused us to adopt a negative view on SBI's creditworthiness," Beatrice Woo, Moody's Vice President and Senior Credit Officer, said in a statement. Moody's said that SBI's Tier-I capital, the core measure of a bank's financial strength, provides an insufficient cushion to support growth and to absorb potentially higher credit costs from worsening asset quality. SBI's non-performing assets (NPA) reached a three-year high of 3.52% of loans as of June 30. For the Indian banking system, the ratio was 2.3% as of March 31, 2011, Moody's said. "Against a backdrop of a slowing economy and higher interest rates, the rising trend evident in SBI's new NPA formation rate since 3QFY11 will continue," the Moody's report said. Moody's expects SBI's potential credit costs to be relatively high in the near term.