Moody’s lowers SBI’s rating as bad loans mount
MUMBAI, FEB. 25:
State Bank of India’s baseline credit assessment has been lowered a notch by credit rating agency Moody’s Investors Service, reflecting its relatively high level of bad loans.
SPECULATIVE GRADE
Moody’s has adjusted SBI’s mapping to a baseline credit assessment (BCA) of ‘ba1’ (speculative grade rating) from ‘baa3’ (investment grade rating) previously on the long-term scale.
BCAs are opinions of the intrinsic — or standalone — financial strength of issuers subject to extraordinary government support, which can include banks, sub-sovereigns and government-related corporate issuers.
The lowering of SBI's BCA reflects its relatively high level of bad loans, which are unlikely to be managed down quickly, said the agency.
The new BCA also reflects the bank’s relatively weaker ability to sustain any further deterioration in the economic environment relative to its similarly-rated peers globally.
DEPOSIT RATING UNCHANGED
Due to SBI’s systemic importance, Moody's has left unchanged the global local currency deposit rating and senior unsecured debt rating at ‘Baa2’ (investment grade rating), said the agency in a statement. The outlook on all SBI’s ratings is stable.
The deterioration in asset quality witnessed over the last 18 months increases the bank’s risk profile, cautioned Moody’s.
The agency pointed to a rise in impaired loans, including re-structured loans, and a smaller cushion to absorb losses due to low-provision coverage and lower Tier-1 capital relative to other large banks in emerging markets.
LOAN-LOSS RESERVES
Furthermore, SBI's shock-absorbing buffers are also not as robust as those of its peers. Its loan-loss reserves of 61 per cent of gross non-performing loans or less than 45 per cent of impaired loans are modest when compared globally
Private banks score over public sector peers in December quarter
- BL RESEARCH BUREAU
February 25, 2013:
On key parameters of performance, such as net interest margin and quality of loans, private sector banks have outshone their public sector peers in the quarter ending December 2012, a Business Line analysis reveals.
Falling interest rates led to interest incomes growing by just 9 per cent in this quarter for the banking industry as a whole. But private sector banks managed a 22 per cent growth while the public sector banks had to rest content with a mere 3 per cent growth.
The net interest margins (NIMs) for public sector banks declined 26 basis points (bps) on a yearly basis while the margins for private banks remained stable. On a sequential basis, margins improved for most private banks (led by IndusInd bank).
The economic slowdown has moderated overall loan growth for banks at 15 per cent. While industrial credit has slowed, retail loans have shown resilience.
Private banks lend more to the retail segment and have thus managed higher loan offtake. Loans by private banks grew by 20.6 per cent year-on-year in the December quarter, beating the loan growth for public sector banks which was at 14.7 per cent.
Reinforcing the gains from a robust growth in retail loans is the phenomenon of private banks being able to reduce their cost of funds. The interest paid out on deposits did not rise in proportion to the growth in deposits as a whole. ‘Current and savings account (CASA) balances, which are relatively less expensive than term deposits, accounted for a significant chunk of monies mobilised for on-lending.
They also reduced their dependence on high-cost bulk deposits. While the growth in CASA was modest for the entire banking universe at 11 per cent, private banks’ CASA grew 13 per cent while public sector banks’ expanded only by 10.8 per cent.
With the deregulation of savings deposit interest rates, private banks were able to offer competitive rates thus garnering higher share of savings deposits. This has also helped them to maintain their NIMs in a falling interest rate scenario with quicker re-pricing of deposits.
On the other hand, the declining share in CASA, followed by the RBI’s recent directive to reduce their high-cost bulk deposit, resulted in a lower growth of deposits for PSU banks.
BAD LOANS
The old story of bad loan problems continued to play out against public sector banks this quarter. Gross non-performing assets (GNPAs) for banks increased by 6.7 per cent in December compared to the preceding quarter. They rose 7.5 per cent for public sector banks versus 1.5 per cent for private sector banks.
Within public sector banks, Bank of Baroda witnessed the highest slippages with 24 per cent growth in GNPAs, Punjab National Bank on the other hand surprised with higher recoveries and upgrades in asset quality. Within the private sector banks, HDFC Bank slipped the most with 14 per cent increase over the September quarter.
Fraud detection: Experian to provide banks info on risk triggers
KOLKATA, FEB. 25:
Experian Credit Information Company India plans to focus on value-added services such as providing risk triggers to banks for early detection of frauds.
The credit bureau has already rolled out certain triggers to manage portfolio risk arising from changes in customers’ spending habits.
According to Mohan Jayaraman, Managing Director of Experian, Indian banks, at present, mainly use only basic credit bureau reports before lending to consumers. However, the demand for value-added products is slowly picking up.
“The Indian credit bureau market started evolving post the crisis in 2007-08. Banks are now contributing data to multiple bureaus and have also got into the hygiene of using bureau report and, in some cases, credit scores before lending,” Jayaraman told Business Line.
While a customer might be in a sound financial position at present, there is a possibility of him defaulting on repayment later.
“By receiving regular alerts about any changes to your customers’ personal or financial situation, you can take immediate action to create individual customer strategies to manage bad debt levels,” he said.
Based on the requirements of a particular bank, the company would work out appropriate risk triggers based on factors such as change in account status (worsening or improving), significant balance changes, opening of new account and exceeding credit limit among others.
CREDIT BUREAU MARKET
There are close to 120 million credit active consumers in the country, which is similar to that in the UK. However, the credit bureau usage in the UK is 20 times higher than in India, Jayaraman pointed out.
The biggest challenge (for Indian credit bureau market) was not data sharing but the quality of data shared, particularly in case of public sector banks, where it differs from one branch to another.
While banks have already started building credit policies in the form of quicker processing based on credit scores, they will soon look at offering attractive rates to consumers with a good credit record, he said.
No comments:
Post a Comment