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Rajesh Goyal

SBI rating has been downgraded from C+ to D- by Moodys. It has sent shock waves in the corporate world and GOI which had shut its eyes on the immediate need for infusion of capital, suddenly now appears to have been worried to some extent. 

To control the damage it has done to the largest lender of India, State Bank of India (SBI) chairman Pratip Chaudhuri  said  "it is not a downgrade per se. It is downgrade of a segment of the bankís debt instrument that is the perpetual tier- I bond and that is outstanding to the extent of something around Rs 200 crore (USD 400 million) due for maturity in 2017. The bankís composite rating consists of many sub-ratings. The sub-rating of this instrument is down from C- to D+. The thing to keep in mind is that the bankís overall rating continues to be one notch higher than the sovereign. People may find is slightly difficult to believe, but thatís the way it is. 


Similarly, within a day of the downgrade, reports are coming that the government has agreed to give anywhere between Rs. 3,000 crore and Rs. 10,000 crore to SBI soon.


At we feel that GOI needs to be pro-active in taking steps to restore the health of the Public Sector banks, which are under tremendous pressure for infusion of fresh capitals to meet the new requirements of the Basel.  With more transparency owing to use of computers, it will be difficult to fudge the figures of asset quality and make fool of the public.  With ever increasing yields, the profits of all banks are likely to be under more stress.


GOI needs to take a firm stand whether it wants to continue its hold on public sector banks or would prefer to make some of them private?  If it wants the banks to remain in public sector then it must be ready to contribute continuously towards the capital of such banks or else such damages to the reputation of public sector banks will continue.  This will shaken the confidence of the general public  and equity market will witness the wide swings. 


Another aspect which GOI needs to tackle is the problem of ever increasing Gross NPAs of public sector banks and inadequate provisions under various heads, including the pension funds.  Ignoring these aspect will soon result in unprecedented damages to the reputation of these banks.



We hope, the GOI, RBI and Heads of Public Sector Banks will realise the above and will come out of the "ostrich" syndrome.