Kumar seeks a higher valuation for SBI
State Bank of India (SBI) chairman Rajnish Kumar on Wednesday pitched for a higher valuation of the bank’s enterprise value, asking analysts to take into account the growth prospects of its subsidiaries, as well as forecasts of a better-than-expected performance in 2020-21.
Kumar said the bank’s performance is set to improve from FY21, following an improvement in asset quality and better growth. Speaking to analysts at the SBI analysts day function, he said the bank expects credit growth to pick up to more than 12% and slippage ratio—the ratio of fresh bad loans added—to fall to 1.3-1.5% by the next fiscal year. This is an improvement on the bank’s current year guidance on loan book growth of 10% and slippage ratio of around 2%.
Kumar urged analysts to consider the potential growth of subsidiaries, while looking at the bank’s valuation. SBI has subsidiaries in life insurance, asset management, credit cards and general insurance segments. The bank is also set to launch the initial public offering (IPO) of SBI Credit Cards before the end of this fiscal year. While almost all the subsidiaries have reported strong financials, the management said these subsidiaries hold huge potential to cross-sell their products to the bank’s 437.8 million customers. While only 0.6% of the bank’s customers hold the majority of products of SBI subsidiaries, 5% have insurance from SBI General Insurance.
Taking analysts through a presentation, SBI’s top management also said the bank was looking at a net interest margin of 3.2% in FY21, and 3.15% by the end of the current fiscal. They added that they were confident of improvements in return on assets (ROA), which is indicative of how profitable the company was relative to its assets, from 0.4-0.5% in FY20 to 0.9-1% by FY21. They also expect credit cost, which is the amount set aside for bad loans, to improve to less than 1% by FY21, compared to 2.66% at the end of FY19.
While it expects slippages to improve, it guided for a rise in bad loans in the third quarter of FY20, owing to its exposure to DHFL.
“The management sounded confident on the growth, credit cost and margin guidance which we believe are achievable as well. While, recovery from some accounts which are expected to get resolved in the near-term will be positive, we believe telecom sector exposure’s performance will be an important monitorable. We find SBI better placed compared to (public sector bank) peerswithseverallevers available to help allow the management keep the credit costs under control during FY20e,” said Lalitabh Shrivastava, banking analyst, Sharekhan.