Downgrade reminds of need for recapitalisation: SBI chief

The State Bank of India Chairman Pratip Chaudhuri on Wednesday said its rating downgrade by Moody's underlines the urgency for recapitalisation of the state-owned lender and expressed the hope that its long pending rights issue would be completed by March end.

"It (rating action) is a reminder to the bank and all the shareholders that the recapitalisation measures requires greater urgency," Chaudhuri said.

The government is the largest shareholder of the bank, with 59 per cent equity.

SBI, the country's largest lender, had submitted the proposal a couple of months back to raise Rs 20,000 crore through the rights issue. The bank requires funding to implement its growth plans over the next two fiscals.

Chaudhuri said the bank has "taken note" of the rating downgrade and "the recapitalisation, we are hopeful, would be completed by the end of December 2011 and at the most March 2012."

Global credit ratings firm Moody's on Tuesday downgraded SBI's financial strength by one notch to 'D+', from 'C-' on account of its low Tier-I capital ratio and deteriorating asset quality. This will make overseas borrowings costly for the state-owned lender.

"This rating applies to our Perpetual Debt which is called IPDR and qualifies for Tier I capital," Chaudhuri said.

He said the bank has so far issued $625 million of such debt in two tranches -- $400 million and $225 million. Both these debts are due for call option in 2017.

"In terms of Basel III these instruments no longer qualify for Tier I capital. Therefore, it is unlikely that we shall be making any such issuances (perpetual debt) in future," he added.

Further, Chaudhuri said the bank has initiated measures that would lead to more efficient and optimum use of capital.

"Medium to long term position of the bank both with regard to capital and NPA are satisfactory and in case the capital position is augmented, the rating action can also be reversed," he said.

The SBI had reported a Tier-I capital ratio of 7.60 per cent as of June 2011, against the suggested level of 8 per cent termed as desirable by the government for public sector banks.

Chaudhuri further said the surpluses and rights issue proceeds would help the bank achieve a Tier I capital adequacy of 9 per cent by March 2012.

Shares of the SBI were trading 3.27 per cent lower at Rs 1,728.30 on the BSE, in the afternoon trade.