Standard & Poor's Ratings Services on Monday affirmed the credit ratings of Indian's leading banks so far as its outlook on their foreign currency and local currency ratings are concerned.

The negative outlook on foreign currency rating of the banks rated reflects the similar outlook on the Indian sovereign since majority of the business operations of the banks concerned is in India.

The global agency affirming their local currency outlook at 'BBpi' commended Indian banks' ability to diversify their loan portfolio, with greater focus on retail loans.

In a press communique, S&P stated that State Bank of India's 'B' foreign currency short-term rating reflects the bank's sound business profile and the improvement in the bank's asset quality, falling non-performing assets to 9.4 per cent (11.98 per cent).

While S&P express concern over the falling net interest income of the bank to 2.9 per cent in fiscal 2003, it added that "this is still relatively healthy" and is supported by SBI's strategy to diversify its loan portfolio in high-yielding consumer loans, as against its traditional focus on low-yielding corporate loan book.

"With pressure on interest margins, this reinforces the necessity of banks to enhance their sources of non-interest incomes," it stated.

It further applauded SBI's balance base of non-interest income represented by a strong component of fees and commission income. This is as opposed to most of its peers, whose non-interest income is largely supported by trading profits.

S&P affirmed ICICI Bank's foreign currency counterparty credit ratings with negative outlook on the back of its conversion to a universal bank.

Since its conversion in March 2002, the bank has improved its liabilities profile and cost of funding following its ability to tap low-cost deposits.

S&P lauded the improvement in the bank's loan portfolio, gradually moving more towards retail lending, representing 30 per cent of its total loans as of March 2003.

Industrial Development Bank of India's rating has been affirmed on the back of improved funding cost profile of the institution following the restructuring of high-cost liabilities.

As part of the restructuring package, the Rs 2,500 crore (Rs 25 billion) financial support over the next five years will help cover the interest differential between the institution's existing cost of borrowings and the pre-determined interest of eight per cent.