‘Even with Covid, our fresh slippages will be in control’ – SBIRicha Varu Rathod
Update on the Indian Equity Market:
On Monday, NIFTY ended up 81 pts (+0.7%) at 11,259.
Among the sectoral indices, MEDIA (+2.6%), AUTO (+2.4%) and METAL (+2.5%) were top gainers while PSUBANK (-0.5%) and PHARMA (-0.3%) were the losers.
Among the stocks, NTPC (+7.5%), EICHERMOT (+4.8%) and ZEEL (+4.7%) were the top gainers. SBI (-1.6%), BHARTIARTL (-1.5%) and BPCL (-1.3%) were the top losers.
‘Even with Covid, our fresh slippages will be in control’ – SBI
Edited excerpts of an interview with Mr. Rajnish Kumar, Chairman of SBI with Business Standard dated 14th Aug, 2020:
SBI Chairman Rajnish Kumar doesn’t see any reason to fear a sudden rise in bad debt during the pandemic. Legacy loans are well taken care of, the bank has enough capital, and the exposure to sectors affected by the Covid-19 stress is minuscule in relation to the balance sheet.
• His comments on restructuring of retail loans: SBI team is working on what the policy would be and to whom the relief should be extended. But mostly, the relief, if needed, would be for housing loans where a person has lost a job and is unable to pay his EMI or there’s been a temporary salary cut. In the case of SBI, the housing loan book under moratorium is about ~ Rs 32,000 crore. But he believes most customers would start paying EMIs from September as the moratorium comes to an end. But whoever needs relief should get it.
• When asked whether banks will have enough time to prepare resolution for all under the latest restructuring scheme, he replied that he doesn’t think they will have to wait for the RBI for such an exercise. There are not many accounts in the corporate group of ~ Rs 1,500 crore and above which would need to go to the committee because a lot of work has already happened under the June 7 framework. There will be some modalities that the committee will suggest, but the ground work such as who would need restructuring, their projections, estimations, etc., can be done.
• His views on banker’s ability to project the topline and bottom line: Future projection is the first thing that is considered in any proposal. Of course, the Covid-19 scenario brings in a lot of uncertainty. Nobody knows how long the pandemic will continue and what the revival plan will be. When you give credit or restructure, it’s based on certain assumptions, and even the current exercise will have to return to those assumptions, particularly for the term loans. The maximum one can postpone or restructure the instalments is for two years. So, whoever had to pay in five years will have to pay now in seven years. Another criterion is that the account should be performing. Whatever you have to do is within these two boundaries.
• When asked if SBI will need additional funds for the restructuring exercise he informed that the bank already has Rs 20,000 crs as an enabling provision. SBI will need to raise money from the equity market only if there is a growth in assets, for any sort of provisions for bad loans. For any risk capital, SBI have sufficient earnings and have the value sitting in subsidiaries.
• He stated that restructuring for retail has come for the first time, and is sure that lenders will make their assessment of portfolio. Moratorium by itself is not a pointer that everybody would apply or need restructuring. In the case of SBI, housing loans worth Rs 32,000 crore are under moratorium where zero or one installment has been paid. He believes many of them will start paying from September as moratorium was available and they were preserving cash. The loan to value for SBI in this segment is 60%. The restructuring would be needed in cases where income was impacted which is not a huge number and hence, any fear of large-scale restructuring is uncalled for.
• When asked whether he is concerned about the NPA situation if the pandemic lingers, he said that the scenarios are not uniform for every bank or every institution, it depends on the underwriting practices, or to which sectors they are exposed to, and what their level of risk diversification is. When negative growth is expected, it is natural that stress in the system will go up. It is a wait and watch situation for everyone. In the last three years, most banks have done a lot of clean-up and provision coverage ratio are at an all-time high. As for SBI, the provision coverage ratio (PCR) has improved from 61 to more than 86 per cent. Legacy NPA today is 1.86 per cent, and it was 5 per cent plus.
• He further commented on bad debt impact for SBI: He informed that SBI’s legacy costs are very minimal. As an example, today, in the corporate book, SBI’S net NPA is Rs 10,500 crore. Just one quarter’s earnings are sufficient to make it zero. The corporate book has no legacy credit cost left. In baseline scenario, not accounting for Covid, it is 1-1.5 per cent of slippages. Considering Covid, he believes in the worst-case scenario this 1.5 per cent can become 2.5-3 per cent. SBI’s exposure to the sectors impacted by Covid-19 is minuscule in relation to the size of the balance sheet.
Consensus Estimate: (Source: market screener, investing.com websites)
• The closing price of SBI was ₹ 193/- as of 17-Aug-2020. It traded at 0.76x/0.7x/0.64x the consensus book value estimate of ₹ 258/279/305 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 265/- implies a PB multiple of 0.86x on FY23E BVPS of ₹ 305/-
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