SBI

Rising interest rates to have a positive impact on NIMs – SBI

Update on the Indian Equity Market:

On Monday, NIFTY ended at 15,842 (+0.4%). PSUBANK (+3%), REALTY (+2.6%), and AUTO (+2.3%) were the sectoral gainers while IT (-0.7%), FMCG (-0.35%), and PHARMA (-0.2%) were the losers.

Among the stocks, EICHERMOT (+8%), APOLLOHOSP (+4.2%), and UPL (+2.8%) led the gainers, while ULTRACEMCO (-3%), SHREECEM (-2.5%), and ASIANPAINT (-1.7%) led the losers.

Excerpts of an interview with Mr. Dinesh Kumar Khara, Chairman, SBI with CNBC-TV18 on 15th May 2022:

  • In terms of advances, SBI has a pipeline of about Rs 4,600 bn worth of proposals. Currently, its corporate book stands at Rs 8,100bn, and if this number fructifies, then it is going to reflect in a healthy corporate book for the bank.
  • There is enough demand in the economy. The growth is coming from the investment demand which is there from the infrastructure projects being led by the government of India. This is going to be the major lever that will bring in more and more spending for investment purposes in the economy.
  • Focus on PLI schemes, and increase in exports are some of the other growth levers that give SBI the confidence and conviction to see decent growth in their loan book.
  • SBI expects ROE (Return on Equity) to be near 15% by FY23 and reach the equivalent level by FY24.
  • It has a Capital Adequacy Ratio that can easily support 10-11% growth in the loan book but it will be closely watching the scenario in terms of growth as it doesn’t want capital to be a constraint when it comes to growth of the bank.
  • SBI expects its slippages to be down but will be closely monitoring them due to the rising interest situation.
  • The asset quality of the bank is expected to be at least at the current levels of 4% if not improved.
  • Normally, there is always a lag between the deposit rates increase and that leads to a situation where the loan interest rates might start moving faster as compared to deposits. This will have a positive impact on the NIMs of the bank.

Asset Multiplier Comments

  • We expect loan book momentum to remain healthy with economic activities picking up and the government’s initiatives to boost infrastructure-related investments.
  • We expect a higher mix of floating loans and CASA mix to contribute to margin expansion in a rising interest rate scenario.
  • We expect moderation in slippages over the subsequent quarters.

Consensus Estimates: (Source: Market screener and investing.com website)

  • The closing price of SBI was ₹ 456/- as of 15-May-2022.  It traded at 1.3x/1.2x the consensus book value per share estimate of ₹ 342/388 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 646/- implies a P/BVPS multiple of 1.6x on the FY24E BVPS estimate of ₹ 388/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Mutual Fund arm to be listed at a favorable time – SBI

Update on the Indian Equity Market:

On Tuesday, Nifty closed lower at 17,092 (-0.7%) all sectoral indices ended in the red. The top losers were  MEDIA (-3.3%), REALTY (-2.9%), and PSU BANK (-1.5%).

Among the NIFTY components, the top losers were TATASTEEL (-4.1%), BPCL (-3.7%), and TCS (-3.5%) while M&M (+1.7%), BAJAJFINSV (+1.2%), and HEROMOTOCO (+1.2%) were the top gainers.

Edited excerpts of an interview with Mr. Ashwani Bhatia, MD of SBI with ETNow on 22nd February 2022:

  • Globally inflation is becoming a worry. The world has not seen those kinds of inflation rates in the US. They were last seen in the 70s and the early part of the 80s. The Indian economy is slightly different, and SBI plans to wait and watch.
  • The process has started for the listing of SBI Mutual Fund and all the paperwork has begun. The public will be hearing something from the company rather soon. There is no urgency for the bank to go to the market. When it believes that the timing is good, the markets are favorable and the valuations are lucrative, it will go to the market.
  • SBI does not need capital at the moment and the Bank’s capital position right now is quite comfortable. The Asset Management business (SBI MF) is doing extremely well. It has grown more than the market and it continues to gain market share. It has gained customers and right now it is running an NFO where it is garnering a decent response as well.
  • The bank just rejigged some rates in some buckets based on its ALCO requirements. It raised rates in the one to two years bucket a little earlier because that forms the bulk of its deposit base on the fixed deposit side. Recently, it did the same for longer tenure fixed deposits.
  • The Bank is adopting a wait and watch approach, but for the moment, there is no movement on the advances side. But it expects a natural progression on rate hikes on the assets side.
  • The bank believes it is going to be a very gradual way in which RBI will start reversing the policy rates. Starting with changing the stance, then moving on to the reverse repo and repo rates so on and so forth.
  • Currently, there is no thinking on when the bank will do the YONO IPO. Right now, it remains part of the bank’s digital offering and packaging. It understands the potential of value unlocking to shareholders, however, there are no immediate plans for a separate listing of YONO.
  • SBI spends a significant amount both on the opex and capex as far as IT goes and is in line with whatever is happening outside. It started with the YONO quite a few years back but at the same time, it has tried to keep pace with all the new developments that have come in be it UPI or BharatPe or all the other instruments that have been started by the government or by NPCI and others.
  • Going forward, SBI believes the way we are going to transact, the way we are going to get loans is going to become much simpler because there is going to be a digital trail and with CIBIL, with scores, with all the kind of enablement that digital provides, things will become much better as far as lending and banking is concerned.

 Asset Multiplier Comments

  • As India’s largest bank and lender, SBI has managed to leverage its vast branch distribution network for its AMC business to transform SBI MF into one of the country’s largest Asset Management Companies. Its separate listing will provide for a significant value unlocking for all the shareholders.
  • SBI is often considered as a proxy for the Indian Economy, SBI’s plans for digital transformation-driven growth and increased penetration across rural India provide an excellent opportunity for the bank to be one of the best in the country.

 Consensus Estimate (Source: market screener website)

  •  The closing price of SBI was ₹ 498 /- as of 22-February-2022. It traded at 1.5x/1.3x/ 1.2x the consensus BVPS estimates of ₹ 333/ 380/ 426 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 650 /- implies a BV Multiple of 1.6x on FY24E BVPS estimate of ₹ 426/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Expect loan book growth of 9.5% in FY22E – SBIN

Update on the Indian Equity Market:

On Monday, NIFTY closed in the green at 18,003 (+1.1%). Among the sectoral indices, PSU BANK (+3.2%), MEDIA (+2.6%), and REALTY (+1.2%) closed higher while none closed in the red. Among stocks, UPL (+4.6%), HEROMOTOCO (+3.3%), and TITAN (+3.1%) were the top gainers while WIPRO (-2.3%), NESTLEIND (-1.0%), and DIVISLAB (-0.9%) were among the top losers.

Excerpts from an interview of Mr. Ashwani Bhatia, MD, State Bank of India (SBIN) with CNBC-TV18 dated 7th January 2022:

  • The management stated that a big part of the stress in the banking system, which mostly consists of the corporate sector, has been reduced and that they are not witnessing any further tension.
  • RBI in their financial stability report talked about some stress buildup on account of COVID, looking at the trajectory of the virus at the moment. But as an industry, the management thinks that things are pretty much in place for decent growth.
  • Management is optimistic about the growth pipeline, the majority of which is expected to result from increased government activity. The national monetization strategy has already taken off, and InvITs are receiving favorable coverage. According to management, more economic activity would benefit the industry. Management expects the loan book to grow at 9.5 percent in FY22E and 7-9 percent in the next 5 years.
  • Mr. Bhatia stated that the retail sector was never a concern. The retail book is generally small ticket, and the housing sector is by far the most important for all banks. In general, delinquencies in the housing industry are quite low. On the personal loan side, some evaluation is done at the backend because the clients are primarily salaried persons or government employees; hence, management anticipates this stress to be managed under 0.5 percent for FY22E.
  • Despite the fact that the RBI has emphasized the stress that the MSME sector is under, as well as the significance of closely monitoring these problematic loans, SBI management, in particular, feels that things cannot get much worse. Today, all public sector banks are well-capitalized, and their high net worth is sufficient to handle loan expansion in the next few years. The bank’s NPA levels are quite constant, and the operating profit and provisions are also adequate.
  • Reliance Industries raised about $400 mn, the biggest issue by any Indian business done overseas, with one of the main reasons being the cheaper cost of financing as opposed to borrowing from a bank. On the subject of whether the trend may lead to a loss of market share for banks, management stated that it is a very beneficial development since it helps local institutions de-risk. Well-managed businesses are gaining access to international funding. After factoring in the hedging cost, the LIBOR, and the spread, the resulting rate would be close to the domestic rate. However, many of the enterprises do not need to hedge since they have a large export book. As a result, the cost of funding is significantly reduced.

Asset Multiplier comments:

  • The asset quality forecast appears to be positive since the worst phase of the corporate cycle appears to be behind the industry. Despite the tough circumstances, it reported good FY21 results. We anticipate that robust loan and deposit growth, as well as continuing recovery, will maintain the earnings momentum.
  • We believe the bank is well-positioned to deliver strong advances and PAT growth on the back of strong retail franchise and recovery in the asset quality, particularly the corporate book. We expect the bank to benefit from economic recovery and recovery of the benign corporate credit cycle.

Consensus Estimate: (Source: Market screener website and Tikr)

  • The closing price of SBI was ₹ 504 as of 10-January-2022. It traded at 1.6x/1.4x/1.3x the consensus Book Value per share estimate of ₹ 300/ 340 / 388 / for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 625 /- which implies a PB per share multiple of 1.6x on FY24E BVPS of ₹ 388/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expect 9-10% credit growth by end of FY22 – State Bank of India

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 18,044 (+0.1%). AUTO (+1%), OIL and GAS (+0.8%), and PSU BANK (+0.8%) led the sectorial gainers. FINANCIAL SERVICES (-0.7%), FINANCIAL SERVICES 25/50 (-0.6%), and FMCG (-0.3%) were sectoral losers. The top gainers in NIFTY50 were M&M (+5.2%), TATAMOTORS (+2.0%), and HEROMOTOCO (+1.0%). The top losers were BRITANNIA (-3%), HDFC BANK (-2%), and HDFC (-1%).

Excerpts of an interview with Mr. Dinesh Kumar Khara, Chairman, State Bank of India (SBIN) with CNBC-TV18 on 08th November 2021:

  • In two to three broad components the credit growth is seen. One is retail credit, which has grown more than 15% on a YOY basis. Muted growth was seen in corporate credit.
  • SBIN got unavailed limits, both in working capital as well as undisbursed term loans, and both of them aggregate to about Rs 4,500,000 mn. SBI also got the pipeline for the proposals which are being processed of Rs 1,150,000 mn.
  • SBIN expects as capacity utilisation improves, there will be a good credit growth in corporate sector in near term. The numbers are quite good in the month of October for the corporate credit and the bank expects there should be a decent growth will be seen in corporate credit in 2HFY22.
  • SBIN registered a credit growth of more than 6% on YoY. The company’s Retail and International book both performed well, international book growing more than 16% on YoY. But the corporate side is the only one which was pulling down the growth.
  • SBIN expects credit growth to be in the range of 9% to 10% at the end of FY22.
  • SBIN is processing loans of commodity, infrastructure, and FMCG sectors. The commodity sector is expected to reach its full capacity utilization and they are expanding and also the demand was back on track in FMCG sector. As a result of this, SBIN expects good credit growth from these sectors.
  • On NPAs, SBIN does not see any challenges as far as corporate credit is concerned. As far as retail is concerned the quality of retail is quite good. SBIN expects to operate in a range of 3.1% to 3.25% in Net Interest Margins.
  • SBIN witnessed some challenges in end of 1QFY22, but the collection machinery was improved significantly. They started pre-collection calls which means they informing customers well in advance for their EMI due. The customer centricity helped in reducing stress asserts in the retail sector.
  • SBIN has a restructured book of Rs 3,00,000 mn. History suggests about 30% of restructured book has a probability of becoming NPA. The current restructuring has happened essentially on account of the disruption in cash flow due to Covid-19. SBIN has seen an improvement in cash flows.
  • SBIN made the Covid related provisions of Rs 62,000 mn. They have provided well for the potential risk which might emanate from this.
  • SBIN collaborated with many fintech companies when it comes to offering their digital solutions. The Bank is actively engaged in terms of looking at what value addition fintech bring.

Asset Multiplier Comments

  • SBIN has reported a robust performance and has fought off the COVID-19 impact and displayed resilience in asset quality performance. The bank has been reporting continued traction in earnings, led by controlled provisions.
  • The improved credit growth prospects, stable NIMs and improving asset quality with adequate provisioning coverage will help SBIN to achieve its target of delivering 15% ROE through various cycles.

Consensus Estimate (Source: Market screener and TIKR Websites)

 

  • The closing price of SBIN was ₹ 529/- as of 09-November-21. It traded at 2x/1.5x/1x the book value per share estimates of ₹ 302/343/388 for FY22E/ FY23E/ FY24E respectively.
  • The consensus target price of ₹ 620/- implies a price/book value multiple of 2x on FY23E BPS of ₹ 343/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Focus on Technology aided Market Share Growth – SBI

Update on Indian Equity Market:
On Tuesday, markets ended lower with Nifty closing 120 points down at 15,632. ASIANPAINT (+5.4%), ULTRACEMCO (+1.8%), HINDUNILVR (+1.0%) were the top gainers on the index while HINDALCO (-3.7%), INDUSINDBK (-3.2%) and TATASTEEL (-2.7%) were the top losers for the day. Among the sectoral indices, FMCG (+0.1%) was the sole gainer, while MEDIA (-2.6%), REALTY (-2.5%) and METAL (-2.3%) were top losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman of SBI with ET NOW on 16th July 2021:

  • SBI’s growth is directly linked with India’s growth story. The Bank expects its loan book to grow across both working capital and term loan segments at 8% if the Indian economy grows around the same rate.
    The 2nd wave impact has been reduced now. The activities are recovering to March-21 i.e pre- 2nd wave levels due to a dip in cases and increased vaccination exposure, the commodity cycle and consumer demand are now back to March-21 levels.
  • The Bank was not caught off guard during the 2nd wave as it was during the first wave. It was well prepared and did not face headwinds during the second wave.
  • RBI’s timely intervention to address resolutions of NPAs has helped the bank manage its asset quality with regards to exposure to the MSME sector and has provided much-needed relief for the sector.
    SBI is a proxy for the Indian economy.
  • The NPA cycle, both net and gross, has reached a 5 year low, so the growth in the Indian Economy in the longer term and the bank’s capabilities to manage its loan book indicate a similar trajectory going ahead.
  • Listing of SBI MF is on the cards, the discussion is ongoing with the JV Partner. They are awaiting a unanimous decision and expect some movement in the upcoming quarters.
  • Fintech Space dominated by Paytm is demonstrating attractiveness to premium valuations, however, the Bank wants to focus its fintech segment SBI YONO to create long-term value for its stakeholders and doesn’t plan to list it for an IPO.
  • Fintech players operate in a niche segment, who don’t offer full-scale banking operations, so it’s an excellent opportunity for the bank to collaborate with such players to expand its growth drivers.
  • The Flight to Safety approach in uncertain times has helped large banks grow their liabilities and by extension, their loan book during the pandemic, the bank expects further consolidation of market share among top players.
  • The Capex and Credit Cycle recovery is evidential in the Cement, Iron and Steel, and the FMCG sectors with some capacity expansion on the cards.

Asset Multiplier Comments:

  • SBI, India’s largest bank is a proxy to India’s growth story. The bank is well-positioned to take benefit of all the disruptions and growth possibilities offered by the pandemic.
  • SBI has separated itself from other PSU banks that are riddled with operational inefficiencies and rigid cost structures, making it an attractive proposition in the banking sector.

Consensus Estimates (Source: market screener website):

  • The closing price of SBI was ₹ 421/- as of 20-July-2021. It traded at 1.4x/1.2x/1x the Book Value per Share (BVPS) estimate of ₹ 309/ ₹ 354/ ₹ 397 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 515/- which trades at 1.3x the BVPS estimate for FY24E of ₹ 397/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Will offer better interest rates to depositors once loan book starts growing – State Bank of India

Update on the Indian Equity Market:

On Tuesday, NIFTY ended marginally higher at 15208 (+0.1%) as it could not sustain the intraday higher levels. Among the sectoral indices, MEDIA (+3.2%), IT (+1.0%), and AUTO (+0.7%) ended higher while PSU BANK (-1.3%), PRIVATE BANK (-0.9%), and BANK (-0.8%) led the losers. Among the stocks, ASIANPAINT (+3.5%), TITAN (+3.3%), and JSWSTEEL (+3.0%) led the gainers while HDFCBANK (-1.9%), HDFCLIFE (-1.4%), and AXISBANK (-1.2%) led the losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman, State Bank of India (SBIN) published in The Economic Times on 23rd May 2021:

  • SBIN has been cautious in terms of building a healthy balance sheet. After careful evaluation and ensuring there are enough risk mitigants, they underwrite the risk.
  • There has been a growth in the retail book, and the retail book’s stress is the least possible. The growth in the retail book provides a decent earnings headroom in the future.
  • The corporate credit growth in 4QFY21 looks muted but they have sanctioned limits that have been utilised to the extent of ~30%. They have seen 70% utilisation. There are sanctioned term loans that have not been availed to the extent of 28-30%.
  • They expect strong growth post demand recovery once Covid 2.0 subsidies. He is hopeful of robust credit growth in the corporate segment going forward. The Agriculture segment is going to be in focus in FY22 in addition to retaining the retail advances growth.
  • The resolution framework (RF) 2 announced on May 5 allows the banks to offer the resolution up to Rs 250 mn to individuals. The individuals in the personal loan segment can be offered the resolution or restructuring as needed.
  • SBIN does not expect much of a problem in the cash flow of their retail borrowers. There could be some anxieties but the bank isn’t concerned much.
  • When it comes to raising funds from the market, it is a function of liquidity in the market. Going forward, Mr. Khara believes the corporates will continue to borrow from banks. Depending upon their risk rating, corporates will be looking at borrowing from the markets. Bank borrowing or borrowing from the market, the only difference is the instrument. SBIN is a strong player in the market borrowing and has a treasury book of Rs 13000 bn.
  • In 4QFY21, the credit costs have gone down by more than 100bps but credit costs evolve as it will be a function of the macro and how the book behaves going forward. They would prefer to maintain the credit costs at these levels because going below the current levels would affect the profitability.
  • SBIN would prefer to offer better interest rates to depositors once the loan book starts growing.
  • Khara believes the deposit rates have bottomed out and there would not be any further cutting down of the deposit rate.
  • Economic situation permitting, SBIN would like to build the loan book and he expects to grow at a pace of at least 10%.

Asset Multiplier Comments

  • SBIN has been focusing on improving asset quality with credit cost and slippages reported in 4QFY21 being the lowest in 20 years. Despite Covid-19 induced stress, the retail loan book has done well and is stable.
  • With a gradual recovery in the return ratios, there could be a much better translation of operating profit to net profit in FY22-23E led by lower credit costs.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of SBIN was ₹ 414/- as of 25-May-2021. It traded at 1.4x/ 1.2x the consensus book value estimate of ₹ 300/ 339 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 456/- implies a PB multiple of 1.3x on FY23E BV of ₹ 339/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Slippages and Credit cost to remain within guidance: State Bank of India

Update on Indian Equity Market:

Markets bounced back from Monday’s steep decline as Nifty closed the day 32 points higher at 14,708. Within the index, TATASTEEL (7.2%), TATAMOTORS (6.6%) and HINDALCO (5.7%) charged the index higher while KOTAKBANK (-3.9%), ADANIPORTS (-1.7%) and MARUTI (-1.6%) lagged the index. Among the sectoral indices, METAL (3.9%), REALTY (2.7%) and AUTO (0.8%) led the winners while FIN SERVICE (-0.5%), PVT BANK (-0.5%) and BANK (-0.4%) led the losing sectors.

Excerpts of an interview with Mr Dinesh Khara, Chairman, State Bank of India Ltd (SBIN) with CNBC -TV18 dated 22nd February 2021:

  • The bank is currently using data analytics to have more effective control over the quality of the loan book. All the measures have resulted in an improvement in the asset quality for the bank.
  • The quality of unsecured loan book depends upon the underwriting of the book. In the unsecured loan portfolio held by the bank, the majority of borrowers are salaried employees either from Government, the public sector or well-rated corporates. To that extent, although it is unsecured, there are no challenges in this book.
  • The corporate loan to working capital book ratio stands at 70:30 at present. He expects working capital utilization to improve with improving capacity utilization. 
  • The bank is not looking at the divestment of any subsidiary at the moment. He said that the bank will evaluate various options available for capital raising in the next financial year and could look at investment in the mutual fund business.
  • The bank is keeping a close watch on the stressed assets’ book and is making efforts via one-time settlement and other means to recover the loans as soon as possible. The slippages and credit cost is expected to remain within the guidance given by the bank.  
  • Digital transactions have gone up significantly in the current year. It has gone to the extent of 64% of the total transactions. The bank is trying to reduce its operating costs to improve cost to income ratio.

 Asset Multiplier Comments:

  • The focus on asset quality and the use of data analytics to keep watch on the quality of the book will lead to prompt decision making regarding the health of the loan book. With this, the confidence to achieve credit cost and slippages as per guidance reflects well for the company.
  • With the pick-up in economic activities, the improvement in collection efficiency augurs well for the banking industry. This will strengthen the asset quality as per the expectation of management.
  • The intent of taking efforts to monetize the stressed assets’ book will help the bank to strengthen the balance sheet over the period of time.

Consensus Estimates (Source: market screener and investing.com websites):

  • The closing price of SBIN was ₹ 397/- as of 23-February-2021.  It traded at 1.5x/ 1.3x/ 1.2x the consensus book value estimate of ₹ 269/ 301/ 340 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 385/- which trades at 1.1x the book value estimate for FY23E of ₹ 340/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Concluded the issuance of bonds to fund overseas business- SBI

Update on the Indian Equity Market:
On Monday Nifty closed 1% higher at 14,485. Among the sectoral indices, IT (+3.3%), Auto (+2.6%), and Realty (+0.6%) closed higher. Media (-1.5%), PSU Bank (-1.5%), and METAL (-1.0%) were the sectoral indices that closed lower. Tata Motors (+12.6%), HCL Tech (+5.9%), and Infosys (+4.8%) closed on a positive note. Tata Steel (-2.6%), Bajaj Finance (-1.9%), and Adani Ports (-1.9%) were among the top losers.

Excerpts from an interview of Mr. Ashwani Bhatia, MD, SBI with CNBC-TV18 dated 8th January 2020:
● State Bank of India (SBI), has concluded the issuance of USD 600mn from bonds to fund the expansion of their overseas business.
● Mr. Ashwani Bhatia said there was a funding gap on the overseas side and this was the right time to fill it.
● SBI is the first bank to raise money post the Covid crisis. The spreads are better as compared to the last 6-7 years.
● Speaking about asset quality on the domestic side, he said the bank has not seen the gloom that was anticipated on slippages.
● On credit growth, he said there could be 8-9% growth in 2HFY21. The demand is coming back and, retail has been a good surprise.
● The decision taken by the central government, RBI, and tax cuts in Maharashtra has helped the bank.
● On loan growth, he said the bank is sitting on excess SLR and it can be used for the economy in the next 3 months. The bank reported a growth of 8% and the expectation is to touch double digits.
● In terms of recovery, he said Rs 7,000-10,000 cr of recovery is expected.
Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of SBI was ₹ 283 as of 11-January-2020. It traded at 1x/ 0.9x/ 0.8x the consensus BVPS per share estimate of ₹ 262/286/318 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for SBI is ₹ 312/- which implies a PB multiple of 0.9x on FY23E BVPS of 318/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Demand for loans coming back – SBI

Update on the Indian Equity Market:
On Thursday, Nifty 50 ended at 13,134 (+0.2%). Among the stocks, MARUTI (+7.3%), NTPC (+4.2%), and ONGC (+4.2%) ended with gains while SBILIFE (-2.0%), HDFCBANK (-1.8%), and TCS (-1.4%) ended the day with losses. Among the sectoral gainers, PSU BANK (+4.8%), MEDIA (+2.8%), and METAL (+2.5%) led the gainers and IT (-0.5%), PRIVATE BANK (-0.5%), and FINANCIAL SERVICES (-0.3%) led the laggards.

Excerpts of an interview with Mr. Dinesh Khara, Chairman, State Bank of India (SBIN) published in Business Standard on 3rd December 2020:
• The bank is cautious about loan demand from vaccine manufacturers given the huge investments which may turn sour if central approvals are not forthcoming. Proposals worth Rs 1,000 crore have been received from the pharmaceutical segments.
• When there is unlocking, there is demand revival, which is going to be the main growth engine in the current scenario. He expects the demand to be back with a vengeance after covid.
• There has been a significant improvement in sanctions and disbursements to unsecured personal loans and express credit loans. In September, in the personal loans space, there was 55% growth year-on-year. Disbursements went up as high as 61 percent. In the home loans segment, there was a 49% growth.
• SBIN has taken stock of the special mention accounts (SMA) 1 and 2 and there is time till March 31 for carrying on the restructuring exercise. There is an internal target of completing 50% of restructuring by December, and the rest by February.
• They have given unsecured loans to customers who have been maintaining their salary accounts, employed with either the government or well-rated private sector corporates.
• Recovery is ensured through the Insolvency and Bankruptcy Code, restructuring, and the non-discretionary one-time settlement schemes. One major resolution went through in the early part of this quarter.
• There has been a delay in big accounts in financial sectors looking for resolution due to litigation. In such cases, an elaborate process is laid out, and timelines given for such accounts are stringent.
• In the recent past, they have raised tier I and tier II capital with prices set at the benchmark.
• SBIN had the work-from-home policy in 2017 and the pandemic has helped SBIN leverage this policy. They have reframed this policy to ‘work from anywhere’ and digitised some of the non-customer facing activities as well. They can’t have a work-from-home policy for everyone as they are a customer-facing organisation and need to engage with customers.
• When YONO, SBIN’s digital banking app was put in place, it was to be a distribution platform for the bank’s products. The definite and concrete plans in terms of listing it will be shared in some time.
• In the post-Covid world, some in-person meetings will probably come back. There will be a paradigm shift when it comes to the way SBIN has been conducting themselves in the past to the way they will conduct themselves in the future.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of SBIN was ₹ 256/- as of 03-December-2020. It traded at 1x/ 0.9x/ 0.8x the consensus book value estimate of ₹ 262/ 286/ 318 for FY21E/ FY22E/FY23E respectively.
• The consensus target price of ₹ 276/- implies a PB multiple of 0.9x on FY23E BV of ₹ 318/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Economy going through a transitory phase, we may witness more changes – SBI

Update on the Indian Equity Market:
On Monday, Nifty ended 1.6% higher at 11,228 on the back of positive global cues and domestic factors like possible stimulus package from the government and capital support to some PSU banks. The top gainers for Nifty 50 were IndusInd bank (+8.0%), Bajaj Finance (+6.4%), and Axis Bank (+5.5%) while the losing stocks for the day Wipro (-0.8%), HUL (-0.5%), and Nestle India (-0.1%). All the sectors were in the green zone. Top gaining sectors were Media (+4.8%), Pvt Bank (+3.6%) and PSU Bank (+3.3%).

Edited excerpts of an interview with Mr Dinesh Kumar Khara, MB, State Bank of India Ltd; dated 27th September 2020 from Economic Times:

• There are certain sectors in the economy seeing some positive traction. The way things have emerged in terms of the health and hygiene issues, it has led to a situation where there was a fear psychosis in the mind of everybody and also a buzz where people started conserving cash. But in some of the sectors like FMCG, steel sectors having demand-led growth opportunities, are seeing very good traction.
• In the auto sector, small cars are something which is on the upside as far as demand is concerned.
• People are willing to come out and contribute to the economic activity, but at the same time, they have got some fear psychosis in terms of health and hygiene.
• The credit growth according to him is around 7%. Slicing it further, Consumer credit is actually on the growth cycle. But the corporate credit has a tendency to deleverage. This is because they are in a bit of uncertainty. They are not yet into the investment cycle. But there is some kind of traction when it comes to certain sectors like the road sector where improvement is seen.
• People are looking for the right signals or some bit of positivity and once it is seen, they will go all out to support the economic activity. That is how he reads the situation.
• When the pandemic kicked in, people had not visualised how they would be in a position to carry out their business continuity plans (BCPs) and reinvented their BCPs. In about six months from then, it has come to a situation where the new realities in terms of working from home have come in, leading to a situation where there could be challenges in lease rentals. Thus, he expects some kind of consolidation to happen.
• In terms of the lease rentals for offices, the high-quality buildings are not facing any challenge whereas the ones which were not of as good quality are facing some challenges. The new cost norms are emerging as social distancing will require even more space in the office and that is also a reality.
• Towards the end of this financial year, when things start improving, they will improve at a very fast pace. It is not likely to be a normal secular trend which has been witnessed in the past.
• If the unlock of activities continues and the Country is in a position to address the health and hygiene issues more effectively in terms of living with the pandemic, there is a possibility that India may get to see better performance as compared to what is being seen now. This is because the most important component here is the confidence of the consumers and that is a function of how people are in a position to navigate this particular problem relating to corona.
• RBI is keeping the liquidity in a fairly easy position and that is something which is ensuring that all these instruments which are there should remain liquid and there should not be any setback to the economy.
• SME funding has been envisaged through the GCL kind of a concept wherein the government is giving the guarantee to financiers and is ensuring that there is no unduly strain on the capital of the banks.
• There is a very clear effort on the part of the government to ensure that there is an amicable resolution of the problem related to GST dues.

Consensus Estimate: (Source: market screener website)
• The closing price of State Bank India was ₹ 187/- as of 28-September-2020. It traded at 0.7x/ 0.7x/0.6x the consensus book value estimate of ₹ 258/279/307 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 265/- implies a PB multiple of 0.9x on FY23E Book Value of ₹ 307/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”