Fitch affirms 'BBB-' rating for SBI, Canara Bank; outlook stable | Key things to know
Upstox
3 min read • Updated: April 16, 2024, 4:26 PM
Summary
According to Fitch, SBI's appetite for risk has been higher than is typical for a bank with its market position, despite total loan growth slowing to 14.5% YoY in the April-December period of FY24, as against a growth of 16% in FY23. In Canara Bank’s case, Fitch sees a return in its appetite for loan growth, which has averaged at around 13% since FY21.
Fitch Ratings has affirmed the long-term issuer default rating (IDR) as “BBB-” for the State Bank of India (SBI) and Canara Bank, as per a note issued on its website on Tuesday, April 16. The ratings agency also maintained its “stable” outlook for both the state-run lenders.
The IDR rating of BBB- denotes that the banks have adequate capacity for payment of financial commitments.
The stable outlook for the SBI has been maintained in the backdrop of the bank’s strong financials, along with its dominant position in the domestic market.
“SBI's business profile score of 'bbb-' is the highest among Indian banks. This reflects our view of SBI's ability to generate business consistently through the cycle while managing risk better than peer state banks,” Fitch stated.
The ratings agency has also affirmed the Viability Rating (VR) at 'bb' and Government Support Rating (GSR) of 'bbb-' for SBI and Canara Bank.
Appetite for risk
According to Fitch, SBI's appetite for risk has been higher than is typical for a bank with its market position, despite total loan growth slowing to 14.5% YoY in the April-December period of fiscal year 2023-24 (9MFY24), as against a growth of 16% in FY23.
“We have revised SBI's asset quality score to 'bb'/stable, from 'bb-'/positive, to reflect the bank's better impaired-loan ratio. We expect the impaired-loan ratio to improve to 2.0% by FY25, after falling to 2.4% in 9MFY24, from 2.8% in FY23, as recoveries and write-offs more than offset new bad loans, amid a growing loan base,” the agency added.
In Canara Bank’s case, Fitch sees a return in its appetite for loan growth, which has averaged around 13% since the financial year ended March 2021 (FY21), well above the 6% average in the preceding five years.
“Growth appetite is higher for farm loans, along with some opportunistic growth in corporate loans in recent years, although Canara appears to have been more cautious towards retail loans than its peers,” it added.
Profitability prospects
Fitch has projected bright profitability prospects for both the lenders. In SBI’s case, it said, profitability has continued to improve, “with the operating profit/risk-weighted asset (RWA) ratio reaching 2.6% in 9MFY24, from 2.4% in FY23”.
This was driven by a sharp drop in loan impairment charges, which more than offset a mild contraction in the net interest margin, higher wage and pension provisions and risk density, the agency said, adding, “We expect profitability to be maintained around these levels to FY26.”
In Canara Bank’s case, the operating profit/RWA rose to 3% in the first nine months of FY24, from 2.4% in FY23, Fitch said. “The outlook is stable as we believe the OP/RWA can be maintained close to our FY24 forecast of 2.9%, despite impending margin pressure,” it added.
In the trading session on April 16, SBI closed 0.62% lower at ₹752.80 apiece on the NSE, whereas Canara Bank settled 1.21% down at ₹585.95.