SBI downgrade: Paying the price for the transition ?

Yesterday's downgrade of SBI's standalone rating ( signifying financial strength) , from C- to D+, by Moody's is , in my opinion, a culimination of the transition unleashed by Pratip Choudhury on taking over as Chairman. The erosion of almost 2% in its Tier-1 capital in Q4 FY 2011, due to higher provisioning was the starting point of the analysts questioining the asset quality of the Bank, and the end-result is yesterday's downgrade.

As the largest shareholder, the Government of India should ask the management to clarify the reasons for the sudden and significant increase in provisioning during Q4. Whether the asset book and  accounting norms really warrant this provisioning, which led to a 99% drop in its net profit for that quarter ? Ot was it motivated solely by the new Chairman's desire to show the inefficiencies of the previous regime, and the vigilence and pro-activeness of the incumbent one? Mainstream media has reported widely on this phenomenon, especially in PSU banks, where each top management transition is followed by a significant fall in performance, ostensibly to lower the bases with which the incumbent management would be compared going forward.

The loser in this game are the shareholders, with Governemt of India (and hence the citizens of India) being the largest block. The management continues make statements such as " the downgrade is not a downgrade per se" ( http://www.moneycontrol.com/news/business/moody39s-downgrade-notdowngrade-per-se-sbi-chairman-_593931.html).