Moody's upgrades SBI's deposit rating (Sify.com) Saturday, 14 August , 2004, 12:17 Moody's Investors Service has upgraded the long-term local currency deposit rating of State Bank of India to A2 from A3. The upgrade was triggered by an improved operating environment in India thanks to robust economic growth and abundant liquidity. The rating also reflects Moody's assessment of the government's capacity to avoid a sustained interruption in the banking payment system or a freeze on local currency deposits. The rating outlook is stable, Moody's Investors service said in a statement. Moody's revised local currency deposit rating also incorporates SBI's inherent financial strength, together with its leading franchise and competent management, albeit set against some asset quality concerns. State Bank of India's D+ (repeat D plus) financial strength rating is currently the highest among Indian rated banks (the private commercial bank ICICI Bank is also rated D+), and reflects its dominant market position as well as good liquidity levels, solid and consistent profitability and adequate capitalization. Moody's regards SBI as "too big to fail", the statement said. "In our opinion, it is inconceivable that the Indian central government and central bank would allow SBI, the country's leading commercial bank, with a 29 per cent market share in total assets and holding 24 per cent of total banking system deposits on a consolidated basis, to default on its local currency obligations", Moody's said. Moody's believes that retail depositors would be considered senior to any other local currency obligation, considering the systemic risk to the Indian banking system and economy. Moody's ratings also address the probability that SBI's ability to repay its local currency depositors would be caught up in a possible default/rescheduling of the government's debt. In such a scenario, Moody's believes that the bank would be likely to be able to meet its obligations from its own resources and, further, that if the bank were to experience any difficulty, the Reserve Bank of India would make sufficient funds available. The rating, however, is somewhat constrained by the probability that such support may not come in a timely fashion due to the absence of an explicit support mechanism in India, Moody's concluded.