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 29^th 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/-.