New Delhi: Concerned over the deteriorating asset quality, Moody's on Tuesday downgraded credit rating of State Bank of India by one notch to 'D+', a development that pulled down its shares to a 2-year low at Rs 1,786.70 on the BSE.

"Moody's Investors Service has downgraded the State Bank of India's bank financial strength rating (BFSR), or standalone rating, to 'D+' from 'C-'," the agency said in a statement.

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Commenting on the downgrade, SBI Chairman Pratip Chaudhuri said, "D+ maps to Baa3 which is still investment grade. Bank of Baroda, Punjab National Bank, Bank of India are also at D+. We were the only exception so far. The present rating of SBI is the same as Government of India."

The standalone rating for SBI's private sector competitors, like ICICI Bank, HDFC Bank and Axis Bank, now stands at a higher level at 'C-'.

'D' rating suggest "modest intrinsic financial strength, potentially requiring some outside support at times", while a 'C' rating denotes "adequate intrinsic financial strength".

Giving the rationale for the downgrade, Moody's Vice- President and Senior Credit Officer Beatrice Woo said, "The rating action considers SBI's capital situation and deteriorating asset quality.

"Our expectations that NPAs are likely to continue rising in the near term -- due to higher interest rates and a slower economy -- have caused us to adopt a negative view on SBI's

The ratings downgrade puts pressure on the government to infuse capital in the country's largest lender as soon as possible.

"Notwithstanding our expectations that SBI's capital ratios will soon be restored through a capital infusion by the government, SBI's efforts to secure this capital for the better part of the year demonstrates the bank's limited ability to manage its capital," Woo said.

Following the rating action, SBI shares plunged nearly six per cent in the intra-day trade on the BSE. It later recovered a bit to close at 2-year low at Rs 1,786.70, down 4.08 per cent.

"SBI's downgrade impacted the investors' sentiment as the market declined after the news. The downgrade had wide impact on the financial stocks," Motilal Oswal Securities Associate
VP Analyst Technical Equities Parag Doctor said.

SBI had reported a Tier-I capital ratio of 7.60 per cent as of June 30, 2011, as against the suggested level of 8 per cent termed as desirable by the government for public sector banks.

"The level pushes the bank into a lower rating band. In addition, it was below the 8 per cent Tier-I ratio that the government of India has committed to maintaining in public sector banks and substantially lower than those of other C- rated Indian banks," the ratings agency said.

It said such a low Tier-I capital ratio provides an insufficient cushion to support growth and to absorb potentially higher credit costs arising from deteriorating asset quality.