Tag - borrowers

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.”