TEXT-S&P afrms 'BBB-/A-3' rtgs on seven Indian Govt.-owned banks

(The following statement was released by the rating agency)

Oct 10 - Standard & Poor's Ratings Services said today that it had affirmed its 'BBB-'long-term and 'A-3' short-term issuer credit ratings on seven government-owned banks in India.The outlook on all the long-term ratings is negative. The banks are:

Bank of India (BOI; BBB-/Negative/A-3) IDBI Bank Ltd. (IDBI; foreign currency BBB-/Negative/A-3) Indian Overseas Bank (IOB; BBB-/Negative/A-3) Indian Bank (BBB-/Negative/A-3) State Bank of India (SBI; BBB-/Negative/A-3) Syndicate Bank (BBB-/Negative/A-3) Union Bank of India (UBI; BBB-/Negative/A-3)

We revised the stand-alone credit profile (SACP) of SBI to 'bbb-' from 'bbb' and that of UBIto 'bb+' from 'bbb-' based on our anticipation of the banks' weak asset quality performance.While we also anticipate that the asset quality of the other five banks could come under somestress, it is likely to be within our base-case expectation. Our assessment of the SACPs ofthese five banks is unchanged: Indian Bank at 'bbb'; BOI at 'bbb-'; and IDBI, IOB, and SyndicateBank at 'bb+'. Our 'BBB-' issuer credit ratings on all the seven banks reflect our expectationof extraordinary support from the government of India (unsolicited rating BBB-/Negative/A-3).However, the ratings on Indian Bank are constrained by the ratings on India because the bank'sSACP is higher than the 'BBB-' sovereign rating.

We affirmed the ratings on all the banks to reflect our expectation that the ratings canwithstand the base-case stress from a likely deterioration in asset quality (see "Credit FAQ:What's Behind Standard & Poor's Recent Rating Actions On Seven Indian Government-Owned Banks?,"published Oct. 10, 2012, on RatingsDirect on the Global Credit Portal). Moreover, we believethat there is a very high likelihood that the government of India would provide timely andsufficient extraordinary support to all these banks in the event of financial distress.

We revised the SACPs of SBI and UBI because we expect the banks' asset quality to remainweak and credit costs to stay high. We have revised our risk position assessment on these banksto "moderate" from "adequate," as our criteria define those terms. We expect SBI's and UBI'sasset quality to remain stressed in the fiscal years ending March 31, 2013, and 2014, partly dueto continued slippages in their restructured loan books.

SBI's gross nonperforming loan (NPL) ratio of 5% (on a stand-alone basis) as of June 30,2012, is the highest among the Indian banks that we rate. On a stand-alone basis, the bank'smid-corporate (NPL: 9.3%) and agriculture (NPL: 9.8%) portfolios are particularly stressed.

NPLs in UBI's agriculture portfolio have also surged. Moreover, the bank has assetconcentration in its infrastructure portfolio, especially in the power sector, which is facingchallenges, such as fuel shortages, delays in securing environmental clearances, and a slow paceof tariff reforms. We have lowered the issue ratings on UBI's hybrid issues (upper Tier 2subordinated and hybrid Tier 1 notes under the bank's medium-term notes program) to 'B+' from'BB'. The bank's SACP is in a speculative-grade category. Therefore, in line with our criteria,we rate the hybrid issues three notches lower than the SACP.


-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011

-- Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

-- Banks: Bank Capital Methodology And Assumptions, Dec. 6, 2010

((Bangalore Ratings Team, Hotline: +91 80 4135 5898swati.ray@thomsonreuters.com,Group id:BangaloreRatings@thomsonreuters.com,Reuters Messaging:swati.ray.thomsonreuters.com@reuters.net))