Who did SBI in? Govt must look in the mirror for answer

When bad news comes, shoot the messenger.

This, in sum, is the signal coming from the Indian government to news about the downgrade of the State Bank of India’s bank financial strength rating (BFSR) from C- to D+ by Moody’s, the international rating agency.

The Times of India, quoting unnamed finance ministry sources, reports that State Bank should have been rated higher because it had government as majority shareholder, and for that reason is unsinkable.

These sources obviously had no time to read the underlying message from Moody’s. SBI has been downgraded precisely because it was government-owned, and not inspite of it. The worries are over its bad loans and capital - and its ownership by government.

More from Blogs

Key differences between third party, comprehensive & zero depreciation bike insurance coverage These lucky members played the CRED bounty and won massive prizes, including Rs 1.5 lakh cash, a PS5, and more: Here’s how you can win as well!

[caption id=“attachment_99807” align=“alignleft” width=“380” caption=“Maybe, the government should ask SBI to find the money and allow its stake to go to 51 percent this year. Reuters”]  [/caption]

Here’s what Moody’s said: “Notwithstanding our expectations that SBI’s capital ratios will soon be restored through a capital infusion by the government, SBI’s efforts to secure this capital for the better part of the year demonstrates the bank’s limited ability to manage its capital. And given that a bank’s ability to freely access the capital markets is an important rating criterion globally, we, therefore, believe a lower BFSR for SBI is warranted, especially as these circumstances are likely to recur.”

In short, Moody is saying the SBI cannot really count on the government to do the decent thing by SBI.

Like the US government, which railed against S&P for the downgrade, the Indian government is miffed that many European countries get better grades than itself, when it is the PIIGS - Portugal, Ireland, Italy, Greece and Spain -that look like they are about to sink. It is now upset about its alter-ego, the SBI, is being downgraded.

India, surely, is not in the same boat as the PIIGS. But in an external environment where capital is fleeing to safe havens and the rupee is weakening, and the budget is stretched, the government is playing ducks and drakes with the future of SBI.

If the SBI were free to raise its own capital, it could raise all it wanted - at the cost of diluting the government’s stake from 59.4 percent to something far less.

Maybe, the government should ask SBI to find the money and allow its stake to go to 51 percent this year.

So, if the government is looking for a villain in all this, it should look in the mirror.