SBI Cards IPO to hit the market this quarter: SBI Chairman

Update on the Indian Equity Market:

On Tuesday, NIFTY ended positive at 11,979 (+2.3%). The top gainers in NIFTY were TITAN (+7.3%), Infratel (+5.7%) and IOC (+5.6%). ZEE (-5.3%), Bajaj Auto (-3.8%) and Yes Bank (-2.8%) were the top NIFTY losers. All the sectors were in the green. The top sectoral gainers were Metal (+3.3%), Financial Service (+2.9%) and Realty (+2.8%).

Excerpts from an interview with Mr Rajnish Kumar, Chairman, State Bank of India (SBI) that was published in Economic Times on 03rd February 2020:

  • SBI believed that no one needed an insurance cover as far as deposits in SBI are concerned. But as far as the system is concerned, after the problems with the cooperative bank which happened in Mumbai, there was a demand that the limit for insurance cover which was set some 27 years ago needs to be revised. This move was much needed and will create more confidence in the minds of the people about banks.
  • AGR Telecom problems: According to him, the matter is sub judice and will be waiting for the Supreme Court decision. The hearing is on 4th February. He thinks and believes that the matter will ultimately be sorted out to the satisfaction of both the parties – the government and the telecom operators. He had a general discussion with a lot of people in the telecom sector where they hinted that they will have at least three to four large telecom operators and the country cannot be served with a lesser number of telecom operators. This has given Mr Kumar  confidence and hope that this matter will get sorted out.
  • Barring one HFC account, things are looking up at least on the corporate recovery front.  This HFC account was in trouble, and SBI was readying for it since September and had started providing for it. Mr Kumar had said in the past that from the recovery and resolution perspective, December and March quarters are likely to be very good for the banking system. SBI is expecting some good resolution and implementation of resolution plans in respect of a couple of large accounts.
  • The loan growth for SBI was around 7% in this quarter coming from their international banking book. There is more demand for foreign currency borrowings from Indian corporates. The retail story is intact and SBI is growing very well. The only thing is the corporate sector demand revival. The loan pipeline is fairly good. As these loans get disbursed, FY21E growth numbers may turn out to be better than FY20. The utilization of limits definitely improved in the last two months and SBI may end up somewhere around 9% YoY growth.
  • The loan processing fee has improved significantly on a QoQ basis for SBI. It indicates that during the December quarter, SBI has processed more proposals. The loan pipeline is of more than Rs 1 lakh crore and all of these loans will get disbursed eventually over the next six months and that is a good indicator from a recovery point of view.
  • SBI Card valuation: According to him, the penetration of credit cards in India is very low and as the economy develops, there will be demand for credit and credit cards. At the same time, SBI card business is growing decently. SBI IPO is expected to happen in this quarter.
  • He said that the move by the government to divest stake in IDBI Bank and list LIC are two measures that stand out in this year’s budget.

Consensus Estimate: (Source: market screener website)

The closing price of SBI was ₹ 306/- as on 4-February 2020. It traded at 1.2x/ 1.1x/ 1.0x the consensus book value of ₹ 249/ 280/ 317 for FY20E/ FY21E/ FY22E respectively.

Huge concern among buyers to invest in under-construction projects, says Rajnish Kumar, chairman, State Bank of India (SBI)

Update on the Indian Equity Market:

On Tuesday, Sensex ended up 92 pts higher and ended at 41,952 level and Nifty settled 30 pts higher at 12,362 level. Among the sectors, Nifty Media (+2.1%) and FMCG (+1.4%) were the top-performing indices while Nifty Private Banks closed 0.5% lower. Among stocks, Yes Bank, Indusind Bank, UPL, Reliance and Kotak Mahindra Bank were among major losers on the Nifty, while gainers were Vedanta, Britannia, Hero Motocorp, Zee Entertainment, MnM and ITC.

Huge concern among buyers to invest in under-construction projects, says Rajnish Kumar, chairman, State Bank of India (SBI)

Edited excerpts of an interview with Rajnish Kumar, Chairman, SBI; dated 13th January 2020:

  • SBI is coming up with a product where the bank backs up a builder to whom the bank has given loan and the buyer who buys homes from that builder will be guaranteed his principal no matter what happens to the builder. This is a product is for all Bank’s home loan buyers.
  • The purpose of this product is that there is a huge concern among the home buyers whenever they want to invest in under-construction projects and SBI finances them anyway, so the bank is taking project risk whenever they are giving a home loan for buying any flat in any project.
  • The level of due diligence which will be done in this case on the builder will be much higher. There is a clear advantage because SBI’s commitment on a particular project whether it is the guarantee of funding to the builder or the home loans on that particular project, they would be within the defined limit.
  • This product is SBI’s brainchild and builders are taken by pleasant surprise by this kind of thinking by the bank.
  • SBI has signed up with Sunteck. An MoU has been signed for three projects and for all these three projects due diligence will be done before approving the amount and the projects.
  • SBI is getting huge interest and a huge number of queries regarding this product.
  • The cost of the loan is same as far as borrower is concerned. As far as guarantee fees are concerned that will be charged to the builder. The financing cost for the builder is fairly high in today’s market, so there is arbitrage available and through this, there is a win-win situation for all the three — the homebuyers, the builder and the bank.
  • Home loan still continues to be one of the most profitable product for the bank.
  • SBI loan the portfolio consists of the salaried class which is a major segment for the bank. Among the non-salaried class, SBI is not as active. Among the salaried class, the defence employees, the central government, the state government, the state-owned undertaking employees are the major contributors to this segment making SBI’s market segment different. This is the reason why the percentage of NPA is very low and comparable to the best in the industry.
  • Any major economic slowdown will naturally impact SBI. However, the loan to value ratio is very low, the average is 60%. So in such a scenario where the loan to value ratio is very low and the stability of income is better, SBI is very hopeful of growing their home loan portfolio and at the same time maintaining its quality.
  • In the case of Bhushan Power, as soon as the legal stay by NCLT gets vacated, SBI expects the transaction to be closed within the next couple of days.

Consensus Estimate: (Source: market screener, website)

  • The closing price of SBI was ₹ 328/- as of 13th January 2020. It traded at 1.3x/ 1.2x/ 1.0x the consensus Book Value per Share estimate for FY20E/ FY21E/ FY22E of ₹ 251/282/324 respectively.
  • Consensus target price of ₹ 377/- implies a PBV multiple of 1.2x on FY22E BVPS of ₹ 324/-.

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 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/-.

SBI: FY20 expected to be the big year of recoveries for the banking sector

Update on the Indian Equity Market:

On Tuesday, NIFTY closed marginally higher at ~11,940 points (+0.5%). In the sector-wise performances, PSU BANK (+3.9%) was the best performing sector while METAL (-0.9%) was the worst-performing sector. Amongst the NIFTY 50 Stocks, INFRATEL (+11.0%), BHARTIARTL (+8.7%), AXISBANK (+3.7%) and RELIANCE (+3.6%) were the top gainers while YESBANK (-2.5%), M&M (-2.1%), ZEEL (-2.1%) and TCS (-2.0%) were the worst performers.

SBI: FY20 expected to be the big year of recoveries for the banking sector

Key takeaways from the interview of Mr Rajnish Kumar, Chairman of State Bank of India (SBI); dated 19th November 2019 on CNBC-TV18:

  • The Supreme Court recently set aside the July 4 order of the National Company Law Appellate Tribunal (NCLAT) approving ArcelorMittal’s Rs 42,000-crore bid for acquiring debt-laden Essar Steel. The bench clarified that financial creditors enjoy primacy and the adjudicating authority cannot interfere with the decision approved by the committee of creditors.
  • Talking about the Supreme Court (SC) decision, Mr Kumar said that it was a big positive and he expects the Essar deal to conclude by the end of November 2019.
  • He is of the opinion that this was a landmark judgement, upholding the validity of the rules, laws, as per the Insolvency and Bankruptcy Code (IBC) Act and the recent amendments carried out by the Government of India (GoI) almost in entirety. SC made only one change; it removed the mandatory 330-day period. In case of unusual circumstances, National Company Law Tribunal (NCLT) can relax or allow the time for a resolution plan to be implemented even beyond 330 days. 
  • Mr Kumar expects FY20 to be the year of recoveries for the banking sector with Essar Steel (~₹ 42,000 cr) judgement and the likes of Bhushan Power and Steel (~₹ 20,000 cr), Ruchi Soya and others (where the banking system’s exposure to each is ~ ₹ 5,000-8,000 cr) being lined up for under IBC.
  • The government introduced rules to resolve cases involving finance companies under section 227 of the IBC.  The Reserve Bank of India (RBI) has been vested with the power and, in consultation with the concerned ministry in the government, they can notify which company to be taken to the NCLT.
  • No financial creditor can take any Non-Banking Financial Company (NBFC), Housing Finance Company (HFC) to NCLT. The power vests with the regulator (the RBI, in this case) to identify in consultation with the central government. It will take the matter u/s 227 to the NCLT and appoint an administrator. Once the NCLT has admitted the case, then the committee of creditors’ concept will come in. The rules also talk of an advisory committee. There will be clarity on this when a case is actually taken up.
  • Coming back to the Essar judgement, Mr Kumar mentioned that SBI has fully provided for the outstanding amount. Thus, any recovery will directly be recorded in the quarters’ profit and loss statement.

Consensus Estimate (Source: market screener and website)

  • The closing price of SBIN was ₹ 327/- as of 19-November-19. It traded at 1.3x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 251/ 280/ 319 respectively.
  • Consensus target price of ₹ 366/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 319/-.

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/-.

SBI chairman: Economy in the transition phase, growth to come back

Update on the Indian Equity Market:On Thursday, BSE benchmark Sensex ended 38 points lower, while Nifty ended below 11,600. Among the sectors, PSU Banks (-3.5%) dragged the most. Bharti Airtel and Reliance Industries were the top gainers. Infratel and Grasim were among the top losers. Maruti Suzuki on Thursday posted a 39% year-on-year (YoY) fall in September quarter profit, which was better than Street expectations. The market was moved by SC decision relating to telecom industry and the trends of Maharashtra and Haryana assembly poll results.

SBI chairman: Economy in the transition phase, growth to come back

Key takeaways from the interview of Mr Rajnish Kumar, Chairman, SBI Bank; dated 24th October 2019: The Indian economy is in a transition phase largely owing to important reforms undertaken in the last few years. Mr. Kumar is exuding confidence that the country’s growth rate will be back on track.

  • Due to a lot of reforms, the economy is in transition. Reforms like GST (goods and services tax) and IBC (insolvency and bankruptcy code) have been implemented in the last three years because of which India is in a transition period. As a result, a lot of cleanup has happened in the corporate sector. He is of the view that disruption is bound to happen in the transition phase.
  • Mr Kumar said that in terms of development, India is still not in the “developed” category. Besides, the per capita income is still low. There is a huge scope for growth in India, and demographics are also not against India. Unlike many other developed countries where they are facing challenges on account of demographics, India does not have that kind of challenge at least for the time being.
  • According to Mr Kumar, the Indian economy is seeing the bottom as far as economic growth is concerned. He expects the market to go up from now because each sector is now starting to perform well. For example, in agriculture, this year’s position is better even in terms of credit. He also mentioned manufacturing and private sector investment in infrastructure is still slow.
  • Observing that the Modi government over the past few years has brought banking to the doorsteps of every household, Mr Kumar said the activation of these accounts have reached almost 90 per cent. Besides, balances of these accounts are now reaching a level where servicing these accounts is “not a loss-making proposition” for the banks.
  • He stated that the average balance in these accounts is touching ₹1,900 and about ₹230 bn in June was the balance in the savings bank account. This itself benefits the economy as such a large population is brought under the banking channels.
  • Noting that the biggest challenge in the banking sector was about the functioning of the public sector banks, Mr Kumar said that recapitalization has happened in a big way but sectoral issues need to be addressed like the power, road and telecom sectors. As these sectoral issues impact the working of the banks, particularly on the asset quality front.
  • He further said that in this government there is no political interference in the banking sector. State Bank of India has been more immune to any pressures because the systems are such that it is very difficult for any Chairman/MD to influence any decision-making process.
  • When asked about cryptocurrency, which has been banned in India, the SBI chairman said that the way the world is moving towards digitisation, at some stage, a regulated cryptocurrency would be a better bet than an unregulated one. He also cautioned about the dark side of the internet as there can be a misuse of the digital currencies. He further added that regulation is a must adding that efforts are on how to bring technologies like blockchain into functioning of the banks.

Consensus Estimate (Source: market screener website) 

  • The stock price was Rs 262/- as of close price of 24-10-19 and traded at 1.03x /0.92x /0.79x the consensus Book Value for FY20E / 21E / 22E of Rs 254/286/331 respectively.
  • Consensus target price of ₹ 275/- implies a Price to Book Value multiple of 0.83x on FY22E Book Value of ₹ 331/-.

SBI 1QFY20 result update: Profitability sequentially better, pace of improvement disappoints.

Dated: 5th August 2019

  • Advances grew by 14% YoY to Rs 21,347 bn. Indian retail book growth was 17% while corporate book growth was 12%. Foreign advances book grew by 16%.
  • NII was Rs 229 bn, 5% higher YoY. Overall NIMs at the Bank level marginally improved to 2.81% from 2.78% in 4QFY19.
  • Total operating expense was 7% higher YoY. The increase was due to higher employee provisions on account of decline in bond yields.
  • Provisions were 52% lower YoY and 44% lower QoQ. The total provisions number was lower due to provision write backs of Rs 24 bn. NPA provisions were Rs 116 bn in 1QFY20 vs. Rs 130 bn in 1QFY19 and 173 bn in 4QFY19.
  • Reported PAT was at Rs 23 bn vs Rs 48 bn loss reported in 1QFY19 and Rs 8 bn profit in 4QFY19.
  • Asset Quality was stable on a sequential basis with GNPA and NNPA at 7.53% and 3.07% respectively.

Management commentary:

  • Slippages were high in 1QFY20 at Rs 162 bn compared to Rs 99 bn and Rs 75 bn in 1QFY19 and 4QFY19 respectively. Reasons for this jump include Rs 20 bn exceptional agri slippages in one state on account of farm loan waiver, higher SME slippages due to absence of RBI dispensation which was available in 1QFY19, Rs 20 bn due to some technical issues in an account that is being serviced regularly.
  • Out of Rs 116 bn NPA provisions made in 1QFY20, Rs 23 bn was provided against 2 accounts that are standard but need proactive provisions as per a recent RBI circular.
  • Management has guided to credit costs of 140 bps for FY20E. This includes any additional provisions that may be required for the 2 specific currently standard accounts (DHFL and one renewable energy account). This credit cost guidance is higher than the previous guidance of 100 bps.
  • Management is expecting loan growth of 12% and NIMs for the overall business of 3.15% in FY20E.
  • In the current scenario, management expects to achieve core RoA of 0.5-0.6% in FY20. Gains from recoveries or subsidiary stake sale will be over and above this return guidance. This is lower than previous comparable guidance of 0.70-0.75%

Consensus estimates (Source: Marketscreener website):

  • The stock price was Rs 300/- as of 5-Aug-19 and traded at 1.17x/ 1.04x the consensus Book Value for FY20E/21E BV of Rs 256/286 respectively.
  • Consensus target price is Rs 376/- implying P/B of 1.31x for FY21E BV of Rs 286