SBI chairman: Economy in the transition phase, growth to come back

Update on the Indian Equity Market:On Thursday, BSE benchmark Sensex ended 38 points lower, while Nifty ended below 11,600. Among the sectors, PSU Banks (-3.5%) dragged the most. Bharti Airtel and Reliance Industries were the top gainers. Infratel and Grasim were among the top losers. Maruti Suzuki on Thursday posted a 39% year-on-year (YoY) fall in September quarter profit, which was better than Street expectations. The market was moved by SC decision relating to telecom industry and the trends of Maharashtra and Haryana assembly poll results.

SBI chairman: Economy in the transition phase, growth to come back

Key takeaways from the interview of Mr Rajnish Kumar, Chairman, SBI Bank; dated 24^th October 2019: The Indian economy is in a transition phase largely owing to important reforms undertaken in the last few years. Mr. Kumar is exuding confidence that the country’s growth rate will be back on track.

• Due to a lot of reforms, the economy is in transition. Reforms like GST (goods and services tax) and IBC (insolvency and bankruptcy code) have been implemented in the last three years because of which India is in a transition period. As a result, a lot of cleanup has happened in the corporate sector. He is of the view that disruption is bound to happen in the transition phase.
• Mr Kumar said that in terms of development, India is still not in the “developed” category. Besides, the per capita income is still low. There is a huge scope for growth in India, and demographics are also not against India. Unlike many other developed countries where they are facing challenges on account of demographics, India does not have that kind of challenge at least for the time being.
  
• According to Mr Kumar, the Indian economy is seeing the bottom as far as economic growth is concerned. He expects the market to go up from now because each sector is now starting to perform well. For example, in agriculture, this year’s position is better even in terms of credit. He also mentioned manufacturing and private sector investment in infrastructure is still slow.
  
• Observing that the Modi government over the past few years has brought banking to the doorsteps of every household, Mr Kumar said the activation of these accounts have reached almost 90 per cent. Besides, balances of these accounts are now reaching a level where servicing these accounts is “not a loss-making proposition” for the banks.
  
• He stated that the average balance in these accounts is touching ₹1,900 and about ₹230 bn in June was the balance in the savings bank account. This itself benefits the economy as such a large population is brought under the banking channels.
  
• Noting that the biggest challenge in the banking sector was about the functioning of the public sector banks, Mr Kumar said that recapitalization has happened in a big way but sectoral issues need to be addressed like the power, road and telecom sectors. As these sectoral issues impact the working of the banks, particularly on the asset quality front.
  
• He further said that in this government there is no political interference in the banking sector. State Bank of India has been more immune to any pressures because the systems are such that it is very difficult for any Chairman/MD to influence any decision-making process.
  
• When asked about cryptocurrency, which has been banned in India, the SBI chairman said that the way the world is moving towards digitisation, at some stage, a regulated cryptocurrency would be a better bet than an unregulated one. He also cautioned about the dark side of the internet as there can be a misuse of the digital currencies. He further added that regulation is a must adding that efforts are on how to bring technologies like blockchain into functioning of the banks.
  

Consensus Estimate (Source: market screener website) 

• The stock price was Rs 262/- as of close price of 24-10-19 and traded at 1.03x /0.92x /0.79x the consensus Book Value for FY20E / 21E / 22E of Rs 254/286/331 respectively.
• Consensus target price of ₹ 275/- implies a Price to Book Value multiple of 0.83x on FY22E Book Value of ₹ 331/-.