Tag - credit cost

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.”


Expect profit in all quarters of FY21–PNB

Update on the Indian Equity Market:


On Monday, Nifty closed higher (+0.7%) at 10,323. Within NIFTY50, BAJAJAUTO (+7.1%), BAJFINANCE (+5.9%), and BAJAJFINSV (+4.8%) were the top gainers, while WIPRO (-1.7%), GAIL (-1.2%) and ONGC (-1.1%) were the top losers. Among the sectoral indices, PSU BANK (+3.9%), METAL (+2.6%), and PHARMA (+2.2%) gained the most.  IT (-0.3%) was the only sector to end in the red.


Expect profit in all quarters of FY21–PNB


Excerpts of an interview with Mr.S S Mallikarjuna Rao, MD&CEO–Punjab National Bank (PNB)published in Business Standard dated 22ndJune 2020:

  • Management expects credit growth of 6% in FY21E from the earlier estimate of 12%.
  • The credit recovery in MSMEs and retail segments is expected to be faster than other bigger segments. Growth in bigger segments will probably come from January 2021.
  • PNB management expects robust comeback in certain sectors of MSMEs in October. Hospitality and travel segments will be slower to recover but less labor-intensive sectors and highly technology-oriented industries will come back faster.
  • PNB does not see any pain in the hospitality portion of the loan book at the moment. Pain may come from the telecom sector which is in stress. But even in telecom, PNB has non-funded exposure, i.e. bank guarantees are given in favor of government. In PNB’s loan book, they do not see any incremental pain in any sectors apart from those already identified.
  • Mr Rao expects profit in every quarter of FY21. In 1HFY20, PNB might earn Rs 18,000 mn from treasury due to yield advantage. In 1QFY21 itself, PNB has booked Rs 11,000 mn treasury gains compared to normal quarterly run rate of Rs 4,000- 5,000 mn. Provisioning burden will impact the profit, but the backlog of provisions would not continue after September.In 2HFY21E, earning will accrue from lending as operating profit stabilizes.
  • PNB has a high stake of government at 85%. The Government stake has to be brought down in 2 years as the threshold for minimum public shareholding is 25%. So incremental fund raising will be via QIP/ public issue/ LIC/ tier-1 or tier-2 capital.
  • Post amalgamation of PNB with Oriental Bank of Commerce, and United Bank of India, there are a lot of non-core asset in the form of properties that PNB will look to sell. Rs 3,000 – 4,000 mn can be generated through this route in FY21E. PNB does not plan to divest interest in joint ventures and associates, including stake in PNB Housing, as they want to hold onto the brand name and see the entities grow.
  • Post the amalgamation, IRDAI has given exemption to PNB to hold stake in 2 insurance companies. There is no sunset clause for this exemption and PNB will continue to hold share in both the companies.
  • On the progress in amalgamation process, organizational restructuring will be complete from 1st July 2020. Technology integration of surrounding applications and ATMs will be complete by September. Core banking integration for one bank will be done by December 2020, and for the other bank by March 2021.
  • For the amalgamated entity, 500,000 customers are eligible under the emergency credit guarantee scheme and Rs 150 – 160 bn can be disbursed. PNB has already sanctioned loans worth Rs 30 bn to 120,000 customers and the remaining gap can be filled in by first week of July.

Consensus Estimate: (Source: market screenerand investing.com websites)

  • The closing price of PNB was ₹ 35.8/- as of 22-June-2020. It traded at 0.7x/ 0.4x the consensus BVPS estimate of ₹ 53.6/ 86.6for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 52.7/- implies a PBmultiple of 0.6x on FY22E BVPS of ₹ 86.6.


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.”


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