Fitch Ratings has assigned a final rating of 'BBB-' to State Bank of India's (SBI, BBB-/Stable) USD 750 million 4.875% senior unsecured notes due May 2028.

This follows the completion of the securities' issue and the receipt of final documents conforming to information previously received. The final rating is the same as the expected rating assigned on 24 April 2023.

The securities constitute SBI's direct, unconditional, unsubordinated and unsecured obligations and will at all times rank pari passu among themselves and with all of SBI's other unsubordinated and unsecured obligations. The notes were issued by SBI's London branch.

Key Rating Drivers

The senior unsecured instruments are rated at the same level as the bank's Issuer Default Rating (IDR), in accordance with Fitch's criteria.

SBI's IDR is driven by its Government Support Rating (GSR) of 'bbb-', which is higher than its Viability Rating (VR) of 'bb'. The GSR reflects Fitch's expectation that SBI is highly likely to receive extraordinary state support from the Indian sovereign (BBB-/Stable), if required. This is due to its very high systemic importance due to its status as India's largest bank, the state's 56.9% controlling ownership, and its broader policy role than peers. The Stable Outlook on the IDR mirrors that of the sovereign.

For more details on SBI's key rating drivers and rating sensitivities, see Fitch Affirms State Bank of India at 'BBB-'; Outlook Stable, dated 4 October 2022.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

SBI's senior debt ratings are broadly sensitive to the same considerations that affect its IDR, and thus would move in line with the IDR.

An IDR downgrade will result in a similar change in the notes' rating.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

An IDR upgrade will result in a similar change in the rating on the notes.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

Date of Relevant Committee

03 October 2022

Sources of Information

The principal sources of information used in the analysis are described in the Applicable Criteria.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

The rating on SBI's senior notes are driven by SBI's Long-Term IDR, which is the same as India's sovereign rating and is thus directly linked with the sovereign Long-Term IDR via the GSR, which reflects our view of the probability of extraordinary state support, should there be a need.

ESG Considerations

SBI has an ESG Relevance Score of '4' for Governance Structure, in line with similarly rated state banks. This reflects our assessment that key governance aspects, in particular, board independence and effectiveness, ownership concentration and protection of creditor and stakeholder rights, are of moderate influence, yet are negative for SBI's credit profile, and are relevant to the ratings in conjunction with other factors.

Similar to other Indian state banks, Fitch views SBI's governance to be less developed, as evident from significant lending to higher-risk borrowers and segments, which has led to above-average levels of impaired loans and credit losses. The board is also dominated by government appointees and the bank's business models often focus on supporting government policy, while it already has a healthy appetite for risk. Lending could be directed towards socioeconomic and economic policies, which may include lending to government-owned companies. These factors also drive our view of the bank's state linkages, which influence support prospects and drive the long-term ratings.

SBI has an ESG Relevance Score of '4' for Financial Transparency. This reflects our assessment that the quality and frequency of financial reporting and the auditing process are of moderate influence, yet are negative for SBI's credit profile, and are relevant to the ratings in conjunction with other factors.

These factors have become more prominent in the past few years because of the sharp financial deterioration at state banks as well as the widely reported divergence in non-performing loan recognition between the banks and the regulator, although these incidences have narrowed in recent years. Nonetheless, government and regulatory pandemic-related relief measures pose a risk for the transparent recognition of impaired loans, although we expect SBI to be reasonably better placed among peers. Still, we regard financial transparency as pivotal for general business and depositor confidence and can lead to significant reputational risk if not managed well.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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