Tag - NPAs

Collection efficiency improved by 16% in 2QFY22 – Bandhan Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY closed flat at 17,890 (-0.2%) led by REALTY (+4.0%), PSU BANK (+2.4%), and MEDIA (+1.0%). Those in red were METAL (-2%), OIL & GAS (-0.8%) and HEALTHCARE (-0.6%). Top gainers in NIFTY50 were MARUTI (+2.2%), NTPC (+2%), and TITAN (+2%). The top losers were TATASTEEL (-3.4%), GRASIM (-2.2%), and JSWSTEEL (-2%).

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank with CNBC-TV18 on 01st November 2021:

  • Asset quality is improving since the last quarter. In Q1, they faced a severe effect of the second wave of COVID-19, but from September it improved in a way that gives comfort to the bank and its future growth is coming
  • From Q1 to Q2, collection efficiency has improved by 16% and the Special Mention Account-0 (SMA-0) has become half, SMA-1 has come 25 percent down and SMA-2 is flat because they made higher provisions in this quarter.
  • Restructured book amount is ₹ 83.3 bn.
  • The second wave was severe than the first wave and the second wave entered the Eastern region which is Bandhan Bank’s core area in May. Hence, the May-June months were affected by that and the impact was seen in Q1FY22.
  • Eventually, August witnessed some improvement and September is when the bank saw a pick-up.
  • The Assam government has informed customers that if they don’t pay their respective dues, their credit history will be affected and they will not get credit in the future.
  • Ground-level customers are returning back and hence collection efficiency improved by 33% from June to September particularly in Assam.
  • Small borrowers are asking for time which is duly provided and it is seen that 66% of these borrowers are paying to the bank and NPA customers are also paying 65% to them
  • As a result, all of these customers don’t belong to the NPA bucket, they belong to the regular bucket.
  • Every day, 14,000 of Bandhan Bank’s customers are closing their loans which means they are coming to the regular category from the restructured and NPA one.
  • If this continues, the bank expects this to normalize in the next couple of months.

Asset Multiplier Comments

  • Bandhan Bank declared 2QFY22 earnings recently and reported a loss, impacted by significantly higher provisions. The Bank has provided for NPA to protect its balance sheet from the potential impact of a 3rd Covid wave.
  • With economic activity picking up ahead of the festive season, we believe credit growth will pick up. The bank is likely to be a beneficiary of this.

Consensus Estimate (Source: market screener websites)

  • The closing price of Bandhan Bank was ₹ 309/- as of 02-November-21. It traded at 3x/2x/2.1x the book value estimate of ₹ 102/130/150 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 310/- implies a Price/book multiple of 2.1x on the FY24E book value of ₹ 150/-.

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.”

Major housing demand is coming from first-time buyers – HDFC

Update on Indian Equity Market:

On Tuesday, NIFTY ended at 17,749 (-0.6%) as it closed near its high at 17,533. Among the sectoral indices, OIL & GAS (+1.3%), PSU BANK (+1.24), and METAL (+0.6%) ended higher, whereas REALTY (-3%), IT (-2.2%), and MEDIA (-1.7%) ended lower. Among the stocks POWERGRID (+4.4%), COALINDIA (+4.2%), and NTPC (+3.74%) led the gainers while BHARTIARTL (-3.7%), TECHM (-3.5%), and BAJFINANCE (-3.3%) led the losers.

Excerpts of an interview with Mr. Keki Mistry, Vice-Chairman and Managing Director of HDFC Ltd (HDFC) with CNBC TV18 on 27th September 2021:

  • Between 2017-2020, demand for housing was largely coming from Tier 2, Tier3 towns or outskirts of big cities but not that much in the center of big cities like Mumbai and Bengaluru.
  • In the last year, people in Mumbai, Delhi, and Bengaluru are buying houses because housing has become very affordable compared to what it has been in the last 20 years.
  • From 2017-20, prices in the center of big cities have remained the same or may have marginally come down. This was complemented by rising income levels of individuals. An average income level of 6-7% a year if compounded on a 3-year basis, gives an approximate increase of 25% against a 0% (virtual) increase in property prices.
  • So, the cost of a house as a multiple of the annual income of a typical customer has become a lot lesser.
  • Mistry believes that structural demand for housing will always remain strong since it is a very under-penetrated market. The factor that points towards a sustained growth of housing in the Indian market apart from increased affordability is a Mortgage-GDP ratio of less than 11%. This ratio ranges between 40-60% in Western countries.
  • Unlike people in the West, Indians prefer buying houses in their late 30s. From a demographic standpoint, two-thirds of India’s population falls in the under-35 age category which will eventually need to buy houses in the next 1-10 years. The average of a first-time buyer in Mumbai is between 37-39 years.
  • The pressure that this sector faced, particularly in big cities like Mumbai, has been quashed because bigger developers took over incomplete projects of smaller developers. But this process takes time because approvals from various authorities need to be obtained.
  • Demand in the industry is muted. Only the reputed developers are seeing traction because customers prefer buying an under-construction property from reputed developers rather than buying the same from a less reputed developer. That is because the risk of a project not getting completed is very little in the case of the former.
  • Collection numbers, from a retail standpoint, are back to pre-covid levels but, the distress that people encountered from April to June might not have gone away completely.
  • These problems are temporary as far as individual NPAs are concerned. He does not believe that the housing finance sector will see any severe loan losses because the security cover is huge and the average loan amount is a small component of the value of the property at origination.
  • The loan to value ratio (loan as a percent of the value of the property) for most lenders is less than 70% which means from day one the individual has a 30% equity in the property upfront.
  • Since all loans are paid equally in monthly installments, this ratio will keep declining every passing month as the installments get paid. Therefore, an individual’s equity in the property keeps rising, and the losses on a housing portfolio of any lender, as long as there is prudent lending, would be almost non-existent to very negligible.

Asset Multiplier Comments

  • The demand from homebuyers is picking up due to subdued interest rates and the government’s push towards the affordable housing segment.
  • Due to a higher focus on individual loans vs non-individual, and a greater share of lending to salaried individuals, HDFC’s loan portfolio did not suffer any major setbacks in terms of asset quality. Moreover, HDFC has a provision buffer in place which is higher than the regulatory requirement.
  • Due to increased demand and low interest rates, rising competition among housing finance companies could exert pressure on interest rates.

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

  • The closing price of HDFC was ₹ 2,802 /- as of 27-Sept-2021. It traded at 5x/4x/4x the consensus BVPS estimate of ₹ 651/703/769 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,016/- implies a P/BV multiple of 4x on FY24E BVPS of ₹ 769/-

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.”



Provisions for slippages will affect short term outlook – LIC Housing Finance

Update on Indian Equity Market:

On Thursday, markets ended lower with Nifty losing 76 points to close at 15,691. ULTRACEMCO (+1.7%), TCS (+1.6%), and INFY (+1.4%) were the top gainers on the index while ADANIPORTS (-9.0%), INDUSINDBK (-3.0%), and HINDALCO (-3.0%) were the top losers for the day. Among the sectoral indices,  METAL (-2.3%),  REALTY (-1.7%), and PSU BANK (-1.4%) were the top losers, while IT (+0.6%) and FMCG (+0.1%) were the only gainers.

Excerpts of an interview with Mr Y Vishwanath Gawd, MD and CEO of LIC Housing Finance on CNBCTV18 dated 16th June 2021 :

  • Retail stress was the leading cause of slippages in non-performing assets (NPA). Substantial new provisions were needed to be made due to the Supreme Court Order last year, which compelled the company to make provisions in 4QFY21.
  • Project Finance and Developer Loans form just 7% of the loan book, so not much issue of NPAs there as the company has made adequate provisions for the loan book.
  • The One-time restructuring facility was provided last year by the government. Around 1.5-2% of the portfolio was restructured using the same facility, this year the company expects a similar restructuring process to be followed, the only concern will be an expectation of a longer repayment structure.
  • The disbursements grew over 97% YoY however the same was not reflected in the order book growth due to faster and larger repayments, consumers shifting their loans to other companies for better terms and restructuring offers during the pandemic.
  • Substantial reduction in the cost of funds has seen the margins improve to around 2.3-2.4% but the company expects margins to stabilise at these levels due to bottoming out of lending rates.
  • As far as the capital infusion is concerned, the company promoter LIC is investing through preferential allotment of 45.4 mn of equity shares which will further shore up leverage and provided much-needed cash impetus. 
  • The focus in FY22 will be to increase market penetration and further improve all the ratios to deliver better value and post incremental growth in the loan book portfolio.

Asset Multiplier Comments:

  • LIC Housing Finance has seen its NPA Provisions bottoming out due to the Supreme Court order. A substantial loan book growth, and improving margins will be the cause of higher growth rates going ahead.
  • As the stress from the Covid-19 pandemic subsides, the affordable housing industry will gather pace which promises better days for the company.

Consensus Estimates (Source: market screener website): 

  • The closing price of LIC Housing Finance was ₹480/- as of 17-June-2021.  It traded at 1.03x/ 0.92x the BVPS estimate of ₹ 462/ ₹ 518  for FY22E/23E respectively.
  • The consensus price target is ₹ 507/- which trades at 0.95x the BVPS estimate for FY23E of ₹ 518/-

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.”

Industry to see a spike in NPA’s in Q3 – Sundaram Finance

Update on the Indian Equity Market:
On Monday Nifty closed 0.2% lower at 11,440. Among the sectoral indices Bank (-1.8%), PVT Bank (-1.5%), and FIN Services (-1.7%) closed lower. IT (+4.4%), Realty (+3.7%), and Media (+1.5%) closed higher. Bharti Airtel (-3.8%), Bajaj Finance (-3.2%), and BPCL (-3.2%) closed on a Negative note. HCL Tech (+10.6%), TCS (+4.9%), and Wipro (+4.5%) were among the top gainers.

Excerpts from an interview of Mr. TT Srinivasaraghavan, MD, Sundaram Finance with ET NOW dated 14th September 2020:

• Mr Srinivasaraghavan said the situation is better and the negativism has started to lift.
• The company continues to focus on prudence and in terms of protecting asset quality.
• The moratorium has ended 10 days ago and now the company is moving into real world.
• He says, the next 4 months ending December are going to be curtail from an asset quality portfolio preservation perspective.
• The growth is coming back is selected few segments, the disbursals in August 20 were 70% of August 19 and September20 is looking similar side or little more.
• The rural and infrastructure segments are showing signs of growth.
• For Commercial Vehicles the first 5 months was a no show and an estimate of the company says that some growth will be seen in Q4FY21E.
• Given current situation he said the current portfolio will be skewed away from Medium and Heavy commercial vehicles.
• The company is well capitalized and there is no need to raise capital.
• On the NPA front, he said that it’s too early to spot a trend but people have started to repay and collections have started to flow in.
• He says, In Q3 the industry will see a spike in NPA’s.
Consensus Estimate: (Source: market screener and Investing.com websites)
• The closing price of Sundaram Finance was ₹ 1,335/- as of 14-September-2020. It traded at 28x/ 19x/ 21x the consensus Earnings per share estimate of ₹ 47.8/70.5/63.5 for FY21E/ FY22E/ FY23E respectively.

• The consensus average target price for Sundaram Finance is ₹ 1,423/- which implies a PE multiple of 22x on FY23E EPS of ₹63.5/-.
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.”

More than Rs 80 bn cash ready to take care of loan demand – Muthoot Finance

Update on the Indian Equity Market:
On Friday, Nifty50 ended higher at 11372 (+0.5%). Among the stocks, NTPC (+5.1%), POWERGRID (+4.6%), and ASIANPAINT (+4.4%) led the gainers. ZEEL (-3.7%), HINDALCO (-1.6%), and BHARTIARTL (-1.3%) led the losers. Among the sectoral indices, PSU BANK (+1.8%), BANK (+1.4%), and PRIVATE BANK (+1.3%) led the gainers. MEDIA (-1.4%), METAL (-0.6%), and IT (-0.3%) were the only losers.

Excerpts from an interview with Mr George Alexander Muthoot, MD, Muthoot Finance with ET Now on 20th August 2020:
• The past two months have been good and the going is great now as well. They are on track to reach or surpass the AUM estimate of about 15% growth. They are seeing good demand for gold loans since gold has been the buzzword recently. People are interested to associate with gold and gold financing is a part of it.
• Mr Muthoot believes it might be a little difficult for people to get credit via personal or housing loan, as lenders and NBFCs are not comfortable with fresh lending. Hence, for the next three-four quarters, there will be a good demand for gold loans.
• All their branches are open and people are able to come to the branches. The past two months has been a good growth period for their business and the momentum is likely to sustain. People are using gold to finance their requirements. Small businesses, small traders, and business people and individuals are using this.
• Gold price has also helped as people with lesser quantities of gold can have more gold loans in their hands. Unfortunately, the tonnage has not grown in line with the growth in AUM because newer loans need to bring only lesser quantities of gold.
• About 89-90% of the portfolio consists of gold loans which don’t have NPAs. NPAs are just loans which have crossed the threshold time limit. Auctioning the gold which is in NPAs is not beneficial as they have to refund money to the customer. Instead, they would give more time to the customer and pay it back and hold it as NPA in the books. None of the NPAs result in loan loss as the full interest and principal is recovered in time. This also keeps customers happy that their gold is not being auctioned off.
• For about 10% of the loan book which is in vehicle finance, housing finance, they have given moratorium to customers.
• Standard provisioning and loan loss provisioning is applicable to them just as to NBFCs. There are about Rs 10 bn provisions in terms of standard assets or loan loss provisions. This is just a technical provision and he never sees it converting into loan loss.
• There is no plan of acquiring any gold loan company since the average tenure is four months only. By the time negotiation with the company is done the loan would have gone off their books.
• The regular growth through 5,000 branches is sufficient for them because the average branch business is about Rs 10 crore and any branch can cater to double that. So an average of Rs 20 crore per branch is easily sustainable for them.
• In South India, both the public and private sector banks are advertising about giving gold loans. Banks coming into this space is good as it gives more credibility and visibility to this business. There are about 25,000 tons of gold in the market with the public and only about 3,000 tons is in the organised gold loan sector. Since there is a lot of gold which has not come into the gold loan market, there is a place for everybody.
Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of Muthoot Finance was ₹1,181/- as of 21-August-2020. It traded at 3.4x/ 2.7x the consensus book value estimate of ₹ 352/438 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 1,195/- implies a PB multiple of 2.8x on FY22E BV of ₹ 428/-.
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.”

COVID-19 impact: Have requested RBI that moratorium sought by consumers should be given, says M&M Fin Services

Update on the Indian Equity Market:

On Thursday, NIFTY continued gains for the 3rd day and ended at 8,641 (+3.9%). Among the sectoral indices, Pvt Bank gained the most while no sector index ended negatively. Pvt bank (+8.3%), Realty (+7.3%) and BANK (+6.4%) were the top gainers. Out of the NIFTY50 stocks, IndusInd bank (+46.0%), L&T (+10.0%) and Bajaj Finance (+9.3%) rallied the most, while GAIL (-3.3%), HCL Tech (-2.6%) and Sun Pharma (-2.5%) were the worst performers for the day.

Edited excerpts of an interview with Mr Ramesh Iyer, Vice Chairman & Managing Director of Mahindra & Mahindra Financial Services Ltd; dated 25th March 2020. The interview aired on CNBC-TV18.

  • Original equipment manufacturers (OEMs) have shut down production due to COVID-19, which obviously have an impact on vehicle financiers.
  • For OEMs at the beginning of 4Q FY20, the volumes started to shrink because everybody was preparing for BS-VI transition and therefore the inventory levels started to come down. Now with the COVID-19 scare – even the little possible sales that were likely to happen have come to an end, according to him.
  • He added the month of January-February was average; March has been absolute no-number kind of a month, so he thinks that it would be a low single-digit growth in loan book or for some it may not even be that.
  • The Company has told the RBI about consumers asking them for a moratorium and has requested RBI to provide the same.
  • They have also told RBI that these are the times where maybe the non-performing assets (NPAs) norms itself will have to be rewritten to say it is not 90-days delinquent but 180-days kind of a delinquent and it is more to protect the good customers who have been paying so far.
  • There is uncertainty about tomorrow. So people had started becoming cautious but even more important is that the overall activities have started to reduce and therefore people’s earnings will start to reduce but these are times where instead of worrying about what is going to happen to the growth and things like that – the Company will be looking at ‘how do they help out the consumers’.
  • The current situation is still not as impactful in the rural market as seen in urban according to him. People will have to figure out after things get normal. They will start relooking at what else to do, how else to do. So the real impact will be known only three months down the line.
  • If consumers need some kind of temporary short-term loan after things get to some normal then the Company will look at what could be that short-term small-ticket loans to the existing consumers whom they may want to support and partner them to come out of this situation as things start to improve.

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

  • The closing price of M&M Financial Services Ltd was Rs 169/- as of 26-March-2020. It traded at 0.9x / 0.8x/ 0.7x the consensus book value estimate of Rs 190/ 211/ 238 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of Rs 394/- implies a PB multiple of 1.7x on the FY22E book value of Rs 238/-

SBI Cards will see rebound once the market settles: Hardayal Prasad, MD & CEO, SBI Cards

Update on the Indian Equity Market:

On Tuesday, NIFTY50 closed 2.5% lower at 8,967. All sectoral indices closed in the red except FMCG (+0.9%) and Pharma (+0.3%). Media (-5.9%), Financial Services (-4.6%) and Bank (-4.1%) were the top losing sectors. The Nifty 50 top gaining stocks for the day were Yes Bank (+59.3%), Hindustan Unilever (+3.1%) and Eicher Motors (+2.8%) while the losers were Zee Entertainment (-20.0%), IndusInd Bank (-9.2%) and ICICI Bank (-8.9%).

Excerpts from an interview with Mr Hardayal Prasad, MD & CEO, SBI Cards Ltd. (SBICARD) with CNBC -TV18 dated 16th March 2020:

  • About the share price bounce back: Mr. Hardayal said that in terms of return on equity (ROE), revenue and growth, when these minor blips of the market are overcome going forward, the company’s strength will come to the fore and they should see a strong rebound.
  • One of the biggest things is that the penetration of the credit card in India is very low, this gives SBI Cards a huge opportunity to grow.
  • According to him, the aspirations of tier II and III cities have still not been met. People want to spend, they have money. They want good things in life and they did not have the opportunities till a few years back. Now with the PoS infrastructure, with the e-commerce and so many other things happening, there is a big potential sitting over there. Thus, SBICARD feels the growth story in India will continue and the Company will continue to show robust growth.
  • He thinks other countries have seen massive penetration of credit cards into smaller towns. Thus, in India, if we leverage ourselves properly if we continue to have our policies right and have a good model, the Indian credit cards market will continue to see similar growth stories.
  • About the NPA concerns with credit card businesses, he said: In the last 10 years, since the last cycle has seen high NPAs and delinquencies, there has been a major shift in the way the business:
  1. India now has an absolutely robust and strong credit bureau which is very important for any country to manage delinquencies.
  2. IT infrastructure, which has been created all across.
  3. The overall modeling that is been done.
  4. The business is spread out. Earlier it was only in the metros; now it is spread out to Tier II and III cities. As many as 58% of the business is now coming from Tier-II cities. Now the leveraging that is there in tier II & III cities is pretty low.
  • So, he doesn’t think the kind of phenomenon one saw in post-Lehman times is there anymore. One can calibrate risks, control NPAs and can ensure good profitability.

2020 will be the best year in terms of recoveries – Rajnish Kumar, SBI

Excerpts from an interview of Mr Rajnish Kumar, Chairman, State Bank of India with live mint dated- 02-01-2019:

Update on the Indian Equity Market:

On Thursday, NIFTY closed +0.8% higher. Among sectoral indices NIFTY Metal (2.7%), NIFTY PSU Bank (+2.0%), NIFTY PVT Bank (+1.2%) closed higher. NIFTY IT closed on marginally negative. The biggest gainers were Tata Motors (+5.1%), Tata Steel (+4.3%) and UltraTech Cement (+4.2%) whereas Eicher Motors (-2.3%), BPCL (-1.0%), and Bajaj Auto (-0.9%) ended with losses.

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  • Mr Kumar says, there is an issue around credit growth particularly in the corporate sector. This year, estimated growth is around 7-8%.
  • Non-performing assets (NPAs) are alright, atheist the recoveries are happening.
  • Term loans are growing. The year-on-year growth is ₹1.7 trillion. Last year, the bank had seen good disbursements and that helped to achieve high credit growth of 13%.
  • He says the pickup in capacity utilization has not happened as of now. It would have been reflected in working capital utilisation if there was any pickup.
  • Speaking about sector growth, he says, only three sectors have proposals with SBI – roads, solar and city gas projects or oil and gas.
  • Speaking about Jet Airways, he says, it has been left to resolution professional. If the RP decides to go for one more round of bidding, then the bank will make one more attempt.
  • The pace of referrals with National Company Law Tribunal (NCLT) will come down. There are not many cases now that are ₹1,500 crore and above.
  • Speaking about steps expected by government or RBI to revive growth, he says, some sector-specific steps are required, telecom issues need to be sorted out.
  • In terms of recoveries, the coming quarters are going to be the best. 2018 was the best year in terms of NPA provisions and 2020 will be best year in terms of recoveries. 2021 onwards things will be normal unless there is a major shock.

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

  • The closing price of SBIN was ₹ 339/- as of 02-January-20. It traded at 1.3x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 251/ 281/ 322 respectively.
  • Consensus target price of ₹ 376/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 322/-.

Bank of Baroda: No Further Slippages

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.6% lower. Among sectoral indices, NIFTY media (-4.5%), NIFTY PSU Banks (-3.1%), NIFTY Metal (-2.0%), NIFTY Bank (-1.8%), NIFTY PVT Bank (-1.8%) closed lower. None of the NIFTY sectoral Index ended on a positive note. The biggest losers were Yes bank (-5.7%), GAIL (-4.8%), ZEEL (-4.7%), whereas Britannia (+4.9%), TCS (+3.7%) and Reliance (+2.9%) ended with gains.

Bank of Baroda: No Further Slippages

Excerpts from an interview of Mr Murali Ramaswami, executive director, Bank of Baroda with CNBC-TV18:

  • Speaking about slippages, Mr Ramaswami mentioned that slippages during the last quarter were Rs 6,001 cr and 4 accounts constituted 60%-65% of it.
  • He said there is nothing to worry about as the worst is behind. Bank’s provision coverage ratio is adequate and the operating performance is growing continuously.
  • In total watch list of Rs 14,500 cr, DHFL is having exposure of Rs 1,900 cr.
  • Mr Ramaswami doesn’t expect any further slippages in the corporate book. About BBB accounts he says, that those are from quite some time with the bank and there are no new accounts.
  • Total exposure to NBFC’s is Rs 1.05 trillion and Rs 97,000 Cr is outstanding. One of the groups NBFC have slipped last quarter but as of now none of them are showing any sense of overdue.
  • Out of Rs 97,000cr outstanding, around Rs 10,000 cr is non reputed private sector.
  • Speaking about NPA’s he says, Gross NPA has come down from 10.28% to 10.25% on a quarterly basis. It will be sub-10% by the end of December quarter.
  • Net Interest Margin stood at 2.81%. Retail growth is primarily driven by auto and home loans. The current growth rate for auto and home loan is 16% and the expectation is that it will increase to 20%.
  • Retail loan, which is around ₹1.05 trillion is expected to rise to ₹1.3-1.35 trillion in this quarter. But overall advances are flat.
  • Some NBFCS have paid back and the bank didn’t take any additional exposure because of stress in that sector.
  • He added that HR integrations are complete, and the bank has saved ₹150 crores in amalgamation profits.
  • Speaking about MD, he says, that the bank does miss Mr Jayakumar. The government has given power to the ED’s to manage the business so there is no impact.

Consensus Estimate (Source: market screener website & Investing.com)

  • The closing price of Bank of Baroda was ₹ 93 /- as of 13-November-2019. It traded at a price to Book Multiple (P/B) multiple of 0.59x/0.54x/0.48x of the consensus book value estimates for FY20/21/22E of ₹ 157/172/192 respectively. 
  • Consensus target price of ₹ 128 /- implies a P/B multiple of 0.6x on B/V of ₹ 192 for the year ending Mar-22E.

SBI: Retail Advances drive the Advances growth

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1.4% higher at 11,787 points on hopes of fresh tax reforms that may lower taxes applicable to capital markets. In the sector-wise performances, Auto (+4.3%) and Metal (+4.0%) were the top gainers while Media (-0.3%) was the only sector to close in the red. Amongst the NIFTY 50 Stocks, TATAMOTORS (+16.6%) , JSWSTEEL (+6.7%), TATASTEEL (+6.4%) and YESBANK (+6.3%) were the top gainers while INFRATEL (-9.0%) and BHARTIARTL (-3.3%) were the top losers.

SBI: Retail Advances drive the Advances growth

Key takeaways from the interview of Mr Dinesh Kumar Khara, MD SBI; dated 29th October 2019 on ET Now:

  • While talking about the State Bank of India (SBIN) 2QFY20 results, the advances grew ~9% YoY and deposits grew ~8% YoY. The retail advances did well. The retail personal advances growth of ~19% drove the overall advance’s growth. Corporate advances reported muted growth.
  • Slippages have come down YoY by ~18% and credit cost are at sub 2% levels.
  • Net Non-Performing Assets (NPAs) at 2.79% and Provision Coverage Ratio (PCR) has gone up to 81%+.
  • Corporate investments are awaited and the utilisation levels are pretty low. Mr Khara expects the utilisations to go up.
  • Personal loans grew by ~19% YoY. There is a lag on the demand on the street and the investment which comes through and the corporate credit demand.
  • The provision for wage increase is a significant component of the cost to income. The PCR is much higher than the Loss Given Default (LGD). This will result in the credit cost to come down going forward.
  • The sale of subsidiary drove the bottom-line growth in 2QFY20. SBIN not looking for any further divestment.
  • The real credit growth and demand pickup in the economy will become from the real economy.  Banks are geared up to meet the demand from the corporate side. Banks have tightened underwriting standards after recent experiences and continue to lend.

Consensus Estimate (Source: market screener and investing website)

  • The closing price of SBIN was ₹ 280/- as of 29-October-19. It traded at 1.11x /1.0x /0.86x the consensus Book Value for FY20E / 21E / 22E of ₹ 253/283/325 respectively.
  • Consensus target price of ₹ 372/- implies a Price to Book multiple of 1.14x on FY22E Book Value of ₹ 325/-.