India Proxy,State Bank of India gets Moody and drops over 5% today to Rs 1750 levels as ‘Moody’ downgrades it’s Banking Financial Strength Rating (BFSR) to D+ from C-

India Proxy,State Bank of India gets Moody and drops over 5% today to Rs 1750 levels as ‘Moody’ downgrades it’s Banking Financial Strength Rating (BFSR) to D+ from C-

As of June 30,2011 State Bank of India had a Tier 1 Captal  of 7.6%…below the Govt stipulated 8% for PSU Banks…It’s Non Performing Assets (NPAs) climbed to 3.5%

For a long time now State Bank of India has been urging for a Rights Issue to take it’s Tier 1 Capital to over 9%…Government holds 59.4% of the Equity of Rs 635 crs and would have to subscribe for over Rs 13000 crs in a Rs 23000 crs proposed Issue to maintain their shareholding…It does not have the money to do so !…and so there has been this delay in pumping in Equity into State Bank of India

State Bank of India faces operational challenges ahead…no funds to plan growth…increasing cost of funds,more so now on this downgrade….increasing NPAs….stiff competition…economic slowdown as high interest rates reduce credit offtakes

At Rs 1750 levels ,It’s avaliable at 1.3 FY 11 Book…Consolidated Networth was Rs 83500 crs giving a Book Value of Rs 1315….Consolidated FY 11 EPS was Rs 170 giving a current P/E of 10.3

Last Year in November the Share Price was at strong levels of Rs 3500 levels,twice that of current levels of Rs 1750…all are invested in it…being patriotic and it being an India Proxy…Being Emotional in Investments can be costly !…lost 50% inside a year and will need a 100% surge to regain last year Nov levels…Moreover if the Rights Issue comes through,there may be some rotational play   

It’s holding on to top market cap in the banking sector and  Rank 9 in Overall Top Market Caps with the Market Cap at just over Rs 110000 crs..not far behind is HDFC Bank at Rs 105000 crs…ICICI Bank,which at one time had pipped State Bank of India in Market Cap,had slipped badly in the past two years but is now playing catch up and is at Rs 91000 crs

Methinks this Moody’s downgrading will force the Government’s hand and the Rights Issue will materialise soon…This downgrade mocks the Bank and India and will surely goad the latter to action to further capitalise the Bank

As the Government was not listening to State Bank of India,maybe,just maybe a hint was dropped to Moodys !

Or let’s argue that State Bank of India is no longer an India Proxy !

Now ! Now ! Gaurav !  

2 thoughts on “India Proxy,State Bank of India gets Moody and drops over 5% today to Rs 1750 levels as ‘Moody’ downgrades it’s Banking Financial Strength Rating (BFSR) to D+ from C-

  1. Moodys stress analysis assumption of 12% GNPA for SBI seems over stretched. However we do have to agree that there has been a lot of speculation regarding the rights issue. With the bond yields already at near 3 year high, it would be interesting to see the effect of this downgrade (definite capital infusion required from the govts side) on the yields..

    Varun Varma (varmavarun.wordpress.com)

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