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

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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 13^th 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, investing.com website)

• The closing price of SBI was ₹ 328/- as of 13^th 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/-.