SBI may have to pay more for funds after rating cut

05 Oct 2011 Evaluate

An unexpected ratings downgrade of State Bank of India by Moody’s trumped stock markets, already battered by worries of a debt default by Greece and its impact on the global financial system. The downgrade will restrict SBI’s ability to negotiate a finer price or competitive rates when it is tapping the market. That could translate into higher cost of borrowing. The triggers for such downgrade are poor asset quality and a weaker capital base amidst rising interest rates. As SBI is seen as a government proxy, the rating agency's action may make it imperative for the government which is the largest shareholder to infuse capital in the bank. Downgrade may hit other PSU Banks’ Shares as well.

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