Moody's Affirms Stability: SBI and HDFC Banks Cement Strong Asset Quality as Ratings Stand Firm

Moody's Affirms Stability: SBI and HDFC Banks Cement Strong Asset Quality as Ratings Stand Firm​

Moody's Ratings on Tuesday affirmed the ratings of State Bank of India (SBI) and HDFC Bank, maintaining a stable outlook based on their strong asset quality. The reaffirmation of both institutions highlights the robust financial health and stability within India's banking sector.

In separate statements, Moody’s confirmed the 'Baa3' long-term deposit rating and the 'baa3' Baseline Credit Assessment (BCA) and adjusted BCA for the state-owned SBI and the private sector HDFC Bank.

Assessing State Bank of India's Financial Strength​

Moody's noted that SBI’s rating affirmation with a stable outlook reflects its large and diversified lending portfolio coupled with stable asset quality. The bank’s profitability is underpinned by strong net interest margins, diverse non-interest income streams, and low credit costs.

The ratings also incorporated the significance of SBI’s dominant domestic franchise, which grants access to a vast base of low-cost deposits. Furthermore, the holding of liquid government securities supports the bank's strong funding and liquidity position, Moody's stated.

While expecting asset quality to remain broadly stable, Moody's advised that some moderation is likely in select segments following rapid credit expansion. These areas include agriculture and Micro, Small and Medium Enterprise (MSME) lending, as credit costs are anticipated to increase modestly from historical lows.

The corporate sector, however, remains healthy within the bank’s portfolio, maintaining strong profitability and low leverage, thus supporting overall asset quality.

HDFC Bank's Robust Franchise Drives Ratings Stability​

HDFC Bank also received a ratings affirmation with a stable outlook, according to Moody's. The decision reflected the bank's consistently strong capital levels, combined with robust asset quality and healthy profitability metrics.

The US-based rating agency pointed out that the bank’s profitability is bolstered by solid net interest margins, diversified non-interest income, and low credit costs. This was supported by its strong retail franchise, which provides access to a substantial base of low-cost deposits.

HDFC Bank's funding and liquidity are further supported by its holdings of liquid government securities. Moody's added that the bank maintains a strong capital position, backed both by internal capital generation and clear access to equity markets for future capital needs.

The rating agency concluded by stating that they expect HDFC Bank to maintain adequate capital buffers necessary to support ongoing credit growth.