A predictable downgrade

State Bank of India should have seen it coming. The Reserve Bank of India had forced it to tighten provisioning because of teaser housing loans and other factors, and SBI’s capital adequacy ratio had therefore fallen to 12 per cent in March, from 14.3 per cent two years earlier. To make matters worse, profits have been falling. So when Moody’s cites poor asset quality and reduced capital adequacy as the reasons for dropping SBI’s rating from C- to D+, it is an entirely understandable step.

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