Fitch Affirms SBI's IDR at BBB-minus with Negative Outlook

Fitch Ratings has affirmed State Bank of India's (SBI's) long-term issuer default rating at BBB-minus with a negative outlook.

The agency has also affirmed the bank's viability rating at bb, support rating floor at BBB-minus and support rating at 2.

The negative outlook on SBI's IDR mirrors the outlook on India's sovereign rating of BBB-minus which was revised to negative from stable on June 18 due to the impact of the escalating coronavirus pandemic on India's economy.

The operating environment for Indian banks remains challenging despite a moderate revival in economic activity due to gradual easing of the lockdown since May.

Fitch revised India's fiscal year ending March 2021 real GDP to minus 10.5 per cent from minus 5 per cent in September but expects India's real GDP to rebound to 11 per cent in FY22 but largely as a result of the low base.

The economic contraction is likely to result in protracted weakness in the asset-quality cycle which could manifest in significantly higher stressed loans and ultimately more write-offs over the next few years, even though Indian banks' latest 2Q FY21 earnings present a more benign picture.

Fitch believes a speedy economic recovery is critical for the sector to rebound meaningfully even though it expects to see a moderately worse landscape for the Indian banking sector in 2021 on weak prospects for new business and revenue generation.

Private banks with stronger loss-absorption buffers will be in a better position to benefit from the recovery against state-owned counterparts, which are generally burdened with greater balance sheet challenges and weaker loss-absorption buffers.