Mumbai: The nation’s largest lender, State Bank of India (SBI), and other state-run banks had their ratings cut at Credit Suisse after the government proposed waiving Rs60,000 crore of loans to small farmers.
SBI was cut to “underperform” from “outperform,” analyst Aditya Singhania at Credit Suisse Group said in a note to clients on Wednesday. Punjab National Bank (PNB), Indian Overseas Bank (IOB), Union Bank and Bank of India (BoI) were also downgraded.
Credit Suisse took the action after finance minister P. Chidambaram said on 29 February that loans overdue as of December will be waived for farmers who own less than 2ha of land. The government also plans a one-time settlement for large farm loans, the minister said, without elaborating.
“The risk perception associated with agricultural lending for government banks has risen significantly,” Singhania said. Credit Suisse cut the price target for SBI’s stock by 34% to Rs1,731. It reduced the ratings for PNB, IOB and Union Bank from “outperform” to “neutral”, while BoI went from “neutral” to “underperform”.
Credit Suisse lowered its earnings estimates for the banks by between 2% and 19%, according to the note.
It cut PNB’s share price target by 29% to Rs535, while reducing price forecasts for IOB by 31% to Rs155, Union Bank by 29% to Rs169 and BoI by 26% to Rs250.