Tag: State Bank of India

State Bank of India cuts its headcount by 25,000 in five years

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The country’s largest lender, State Bank of India, has cut its total headcount by 10% since FY19, equating to 25,000 fewer staff. The number of employees at the state-owned lender stood at 2,32,296 at the end of March 31, 2024, according to data collated from exchange filings.

In contrast, the bank had a total headcount of 2,57,252 at the end of FY19. That was despite the fact that the bank enjoys one of the lowest attrition rates in the sector, which stood at 1.43% during FY24.

On an average, the bank has witnessed a reduction of 5,000 employees every year since FY19, with the highest cut being in FY23 at 8,392 employees. However, the reduction in the number of employees coupled with a surge in profitability aided the bank report improved profit per employee. The bank reported a profit per employee of 26.2 lakh in FY24, against 5.8 lakh reported in FY20. At ₹61,077 crore, the net profit of SBI grew at an annualised rate of 44% between FY22 and FY24.

The staff expenses of SBI increased by 24% in FY24 to ₹71,237 crore. During the fiscal year, the bank also provided an additional provision of ₹13,387 crore to cover the 12th bipartite wage revision settlement. Excluding the one-time wage revision expenses, staff expenses are set to increase by ₹500 crore per month from FY25. The management expects the overheads to be in the range of ₹65,000 crore to ₹70,000 crore for the financial year 2025. “Our employees are recruited from the best talent in the country and are trained to handle the scale, complexity and compliance requirements of the bank,” said Dinesh Khara, Chairman of SBI, post-Q4 results.

Additionally, improvements in profitability also pushed the bank’s return on assets (RoA) higher. The RoA, which has been on an upward trend over the last six years, hit 1.04% in FY24. In comparison, the ratio stood at 0.02% in FY19.

Shares of SBI have outperformed the benchmark index by a wider margin over the last six months. While the stock of SBI has rallied as much as 41% in six months through May 14, the gauge for bank stocks—Bank Nifty—has yielded a return of 9% during the same period.

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SBI shares surge as bank reports record quarterly profit: Is it time to buy?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The shares of State Bank of India (SBI) on Friday (May 10) rose over 1% following the announcement of its robust fourth-quarter results for the financial year 2023-24. The bank reported its highest-ever quarterly net profit of ₹20,698 crore for the fourth quarter.

The lender’s net profit posted a 24% surge compared to the same period last year.

Analysts’ projections, as per CNBC-TV18’s earlier poll, had suggested a contrasting scenario with an anticipated decline of 21.6%.

The actual profit not only surpassed expectations but exceeded them by over 20%.

Key metrics further underlined the bank’s robust performance.

SBI’s Net Interest Income (NII) stood at ₹41,656 crore, surpassing CNBC-TV18’s poll expectation of ₹40,887.5 crore.

Additionally, the lender exhibited its strongest asset quality in nine years, with a notable decrease in Gross Non-Performing Assets (NPA) by 2.9% and Net NPA by 6.1% quarter-on-quarter.

In light of this result, several brokerage firms have expressed bullish sentiments towards SBI’s stock.

Emkay Global retained a ‘buy’ rating on the stock and raised its SBI share price target to ₹950 apiece, citing a strong all-around performance in the fourth quarter.

Motilal Oswal maintained its ‘buy’ call on SBI, emphasising steady growth in revenues and robust asset quality, while projecting promising Return on Assets (RoA) and Return on Equity (RoE) figures for the future.

Nomura highlighted SBI as its top pick and raised its price target on the lender to ₹1,000.

Similarly, Kotak Institutional Equities revised its price target to ₹950, anticipating a relatively stable performance from SBI amid a favourable macroeconomic environment.

Jefferies maintained its ‘buy’ rating on the stock and raised its price target, indicating sustained confidence in SBI’s long-term growth prospects.

Despite the optimistic outlook, some analysts urge caution, noting that while SBI remains a top pick, sharp outperformance from current levels may not be imminent.

At the time of writing this report, SBI shares were trading 0.62% higher at ₹824.70 apiece on BSE.

ALSO READ | Interview: SBI has ₹4 lakh crore worth of loan proposals in pipeline, says Chairman Dinesh Khara

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Interview: SBI has ₹4 lakh crore worth of loan proposals in pipeline, says Chairman Dinesh Khara

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The State Bank of India (SBI) announced its financial results for the fourth quarter on Thursday, May 9. The state-owned lender’s profits rose by 24% over the previous year, far above street estimates.

Net interest income (NII) inched up by more than 3% year-on-year, while asset quality improved, and advances in deposit growth were positive as well.

Speaking to CNBC-TV18, Chairman Dinesh Kumar Khara stated he expects growth in advances to continue.

He added that SBI has ₹4 lakh crore worth of loan proposals in the pipeline.

Khara also discussed the bank’s stance on RBI’s draft project financing rules.

Here are the edited excerpts:

Q: SBI’s advances growth looks strong, at 5% sequentially. What target do you have for FY25 considering your pipeline, both in the private and government sectors?

A: We anticipate similar trends in advances growth, around 16%, across corporate, SME, retail, and agriculture sectors. The GDP growth outlook supports this confidence. Capacity utilisation has improved to 35%, and working capital facilities have increased by over 10%. Additionally, our unavailed term loans decreased to about 18%. These factors, coupled with a pipeline of ₹4 lakh crore worth of proposals, indicate promising growth for the current financial year.

Q: Your capital adequacy stands at 14.28%, comfortable for a ₹37 lakh crore book. What growth rates can this level of capital support, and when might you consider raising equity?

A: With our current capital adequacy, we can support a growth of up to 20%, equivalent to ₹7 trillion. However, we’ll monitor capital requirements closely, ensuring our Return on Equity (ROE) exceeds loan book growth. We plan to raise tier-I capital this year and may consider further capital raise if needed, though profit plough-back remains a viable option.

Q: Deposits have grown by over 11% year-on-year this quarter. Do you expect this growth rate to continue?

A: Term deposits grew by about 16%, largely due to increased interest rates introduced in October. We anticipate sustained deposit growth and aim to enhance it further through strategic actions in savings and current accounts.

Q: Despite the size of your book, gross slippage remains relatively low. Where do these slippages originate, and do you foresee improvement in FY25?

A: Slippages mainly stem from agriculture and SME sectors. Of the ₹3,886 crore slippages in the last quarter, we’ve already recovered over ₹886 crore. We aim to maintain tight control on slippages going forward.

Q: You closed the year with recoveries and upgrades exceeding ₹11,400 crores. What are your expectations for FY25, especially regarding recovery from large accounts?

A: FY25 may see a slight reduction in recoveries due to fewer high-value accounts in our NPAs and AUCA book. However, we’ll leverage all resources to maximize recovery efforts.

Q: Considering the current deposit cost plateau, do you foresee maintaining or expanding current margin levels?

A: Market uncertainties necessitate cautious underwriting to ensure asset quality. While I refrain from over-committing, our focus remains on prudent management to sustain or enhance margin levels.

Q: Regarding RBI’s draft proposals on project finances, what impact do you foresee on SBI, especially in terms of additional provisioning?

A: The 5% increase in general provisions, if implemented, will likely be phased over three years, providing adequate adjustment time. While the discussion is ongoing, we’re not overly concerned about its impact.

Q: Some stakeholders suggest these guidelines might affect sentiment around project financing. What’s your view on RBI’s approach?

A: Lenders must account for risk premiums adequately to avoid adverse outcomes. Mindful pricing should mitigate concerns surrounding project financing.

Q: You mentioned areas of improvement for SBI. Can you elaborate on these and what to expect for FY25?

A: Efforts to strengthen the CASA ratio are underway, focusing on supporting savings and current accounts. Initial progress is promising, and we aim to harness the collective energy of our branch network to drive deposit growth.

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SBI Q4 results preview: Net profit may decline by over 20% but analysts optimistic on asset quality

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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State Bank of India (SBI) will announce its results for the fourth quarter of financial year 2024 on Thursday (May 9). According to a poll conducted by CNBC-TV18, the net profit of the bank may experience a decline of 21.6% compared to the same period last year.

Although there could be an increase of 42.8% in net profit when compared quarter-on-quarter (QoQ), the poll said.

Key financial indicators suggest that while the Net Interest Income (NII) is expected to see a rise to ₹40,887.5 crore from the previous quarter and a slight increase compared to the same period last year, Profit After Tax (PAT) is projected to decrease year-on-year to ₹13,081.9 crore.

Several critical aspects of the bank’s performance will be closely monitored.

These include the anticipation that deposit growth may trail behind system growth, while advances growth is expected to maintain its strength.

Analysts predict that Net Interest Margin (NIM) may face pressure both year-on-year and quarter-on-quarter, and operating expenses are likely to remain high, potentially affecting operating profits.

Stable slippages are predicted quarter-on-quarter, while recovery and upgrades are forecasted to be subdued.

Asset quality is expected to either stabilise or improve.

Management commentary on growth, unsecured loans, and NIM outlook will be closely scrutinised.

Analysts at Motilal Oswal anticipate a positive trend for gross non-performing assets (NPAs), predicting an improvement to 2.3% in Q4FY24 from 2.8% in Q3FY24.

Similarly, a decrease in net NPAs is expected to 0.6% in Q4FY24 from 0.7% in the year-ago period.

Throughout the year, SBI shares have seen a growth of over 27% and have outperformed the Nifty 50 index, which recorded only marginal gains of 2%.

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PSU Banks contribute 14% to the overall market capitalisation erosion in May so far

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of state-owned lenders extended their fall on Tuesday (May 7), after the Reserve Bank of India’s (RBI) draft rules, which proposed tighter rules for project financing. The gauge for public sector banks saw all of its constituents losing value for the second day in a row.

Moreover, the extended drop also wiped out ₹1.1 lakh crore of investor wealth over the last four sessions. In contrast, the aggregate market capitalisation of all listed companies on the NSE slid ₹7.9 lakh crore during the same period to ₹395.13 lakh crore. As of Tuesday’s close, the combined market valuation of state-owned banks stood at ₹16.5 lakh crore.

The Nifty PSU Bank index declined another 2.3% on Tuesday, after losing nearly 4% in the previous session. The two-day fall has taken the index’s month-to-date loss to 6.8%. Interestingly, the May month had seen a sell-off in previous years as well. While it declined 3.3% in May 2023, the gauge had dropped 6.6% in May 2022.

Also Read: RBI proposals on project financing will induce borrower discipline: Indian Bank’s SL Jain

Among the index constituents, the largest lender — State Bank of India — lost the most, which was followed by Punjab National Bank. While the market capitalisation of SBI declined by ₹21,730 crore since the beginning of May, other lenders like Punjab National Bank, Bank of Baroda and Indian Overseas Bank also saw their market valuation fall between ₹11,000 crore to ₹20,650 crore during the same period. These four banks contributed almost 60% to the fall of the Nifty PSU Bank index.

Bank stocks, particularly state-owned banks have sold off after the RBI issued new rules for projects under implementation. All 12 stocks on the Nifty PSU Bank index closed lower for the second day in a row. The central bank has tightened the lending for project financing, which will lead to increasing standard asset provisioning to 1%-5% of loans from the present 0.4% in a phased manner.

While the benchmark Nifty50 declined 1.3% since May 1, the Nifty Bank Index has slid 2.3%, whereas the Nifty PSU Index has come off close to 7% during the same period.

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Indian banks may report smaller margins and fewer bad loans

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Banks are expected to witness a continued decrease in net interest margins in the January-March 2024 quarter due to tight liquidity and intense competition for deposits.

Below are the key expectations for the quarter.

As of March 22, the loan growth was around 20.1% year-on-year and around 3% quarter-on-quarter.

Low-cost deposit ratio has been declining for the last few quarters, an the downward trend may continue. The current account savings account (CASA) ratio is also likely to continue to decline in the fourth quarter for many players.

There could also be a slowdown in the operating profit growth rate, largely due to a decline in net interest margin and also because of lower trading gains.

Credit costs remain on the lower side for the sector, thereby aiding the bottom line and the return ratios.

However, earnings will be under pressure and there may be a decline for some lenders.

The banking sector is witnessing the best asset quality in over a decade and it will continue to remain in a sweet spot.

Slippages will be on downward trend. However, not too many upgrades are likely.

Key highlights will be the deposit mobilisation as it has lagged loan growth over the last few quarters. Hence, lenders’ outlook, with respect to focusing on deposit growth or slowing down loan growth, will be watched closely.

Kotak Securities estimates for some leading banks:

Brokerage firm Kotak Securities expects State Bank of India to post a net interest income (NII) decline of 0.5% year-on-year and up about 1% on a sequential basis.

Net profit is expected at ₹13,150 crore, down 21% year-on-year and up about 43.6% sequentially.

For Bank of Baroda, Kotak estimates NII to decline 2.2% year-on-year but up about 1.50% quarter-on-quarter.

However, they expect the profit to decline 7.2% year-on-year and about 3.2% sequentially.

For HDFC Bank, where the estimates are only sequential because of the merger of HDFC, Kotak expects NII increase of 3.50% and net profit rise of 22.3% largely aided by the other income.

For ICICI Bank, Kotak expects NII to be up about 3.7% year-on-year but a decline of 1.9% quarter-on-quarter.

Net profit is estimated to be up 4.6% year-on-year but down more than 7% quarter-on-quarter.

For Axis Bank, Kotak securities estimates NII to be up about 8.9% year-on-year and about 2% sequentially.

Net profit of Axis Bank is expected to decline by 1.7% year-on-year but rise 0.7% sequentially.

Speaking to CNBC-TV18, Nitin Aggarwal, Head of BFSI Research, Institutional Equity at Motilal Oswal Financial Services, believes that overall numbers are anticipated to moderate, a process ongoing for over a year.

According to Aggarwal, this quarter there is an expectation of a 6% earnings growth, excluding HDFC Bank for private banks, and approximately 12-13% for PSUs.

“In banking, we think the steadiness will continue in the numbers. We like ICICI Bank, where we are looking at a 16-17% year-on-year earnings growth, and SBI where we are projecting a ₹16,000 crore profit after tax (PAT). From southern private banks, we like IndusInd Bank, where we are expecting stable margins,” he said.

Saurabh Kumar, Senior Analyst for India Banking and Financial Research at JPMorgan, anticipates an increase in credit costs, particularly in the unsecured business.

Kumar will keenly watch the guidance on the current financial year’s loan and balance sheet growth.

Kumar noted that banks are likely to be valued based on growth prospects, as Indian banks’ credit quality remains among the strongest in the Asia Pacific region. Therefore, investors will focus heavily on growth opportunities.

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SBI Chairman Dinesh Khara says corporate investment cycle is gathering steam | Q&A

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Dinesh Khara, Chairman of State Bank of India (SBI) says there is some pickup in the corporate investment cycle.

“I think it is  in the last leg where people have started investing because there is enough cash in the balance sheet. As far as their equity contribution is concerned, that are very visible. Now they have started approaching for leverage also,” he said in a conversation with CNBC-TV18.

Read the verbatim transcript of the interview.

Q: On the liquidity coverage ratio (LCR) framework, which the governor mentioned in the policy, they have proposed some modifications to the liquidity coverage ratio framework to facilitate some better management of liquidity risk by banks up. What did you make of it, what could have prompted this and what are your expectations from this draft circular that will come up?

A: What used to happen, because of the payment systems efficiency and real-time gross settlement (RTGS) and national electronic fund transfer (NEFT) etc. made available 24×7 and 365 days, the system was required to keep the excess liquidity. Because RTGS and NEFT can hit at any point of time, during the weekdays and as well as on the weekend also. So, just to ensure that no bank is left out with some debit balance, all banks were required to keep some excess liquidity.

My assessment is that it was as high as to the extent about ₹50,000 crore. So now in virtue of the readjustment arrangement possible 24×7 and that is something the banks should be in a position to monitor it on a real time basis, and which will actually unlock that excess liquidity which was required to be kept. So, I think it will ensure even better and more efficient liquidity management.

Q: The governor in the policy said that the prospects of investment activity are looking bright and he listed whether it is private capex cycle, government capital expenditure, healthy balance sheets or capacity utilisation improving, it looks good from a macro point of view. Give us a sense of what you are seeing on the ground, as the largest banker, is the corporate investment cycle picking up and what’s in the pipeline for SBI?

A: We do see the investment sector picking up and pipeline of course, I have not taken stock in the recent past. But yes, of course, the last number which I recall, it was very strong at about ₹4.50-5 lakh crore odd. I think we would have disbursed some and we would have got some new proposals also. So I actually get to see very positive responses from the corporates. They are evaluating all possible investment opportunities, and they are committing on ground also.

So this I would say which we have been seeing for quite some time, people used to debate and discuss and now I think it is in the last leg where people have started investing because there was enough cash in the balance sheet. So as far as their equity contribution is concerned, that are very visible. So now they have started approaching for the leverage and also they have started availing also which actually augurs very well.

Q: Last year, you had guided us for FY24, that you would have a credit growth of 14 to 16%. What is the coming year look like on the back of this pickup in corporate activity that you just told us about and, what you are aspiring to and what the industry could also see?

A: I am sure the results are some time away for us. But as far as the last year’s guidance was concerned, my sense is that we would be beating those estimates and based upon this and the kind of positive environment which we are seeing now, my expectation is that in the year 2024-25 we should even get to see even better numbers. And I invariably say that the real growth rate plus another two to three basis points is something that we expect to grow.

So my sense is that we should be having a GDP growth of about almost of 8% in the year 2024-25. Inflation being at 4.5% so say about 12.5 plus – so around 15% plus is something which I expect. But I always say that I believe in under-promising and over-delivering.

Q: Let me quickly touch upon the retail loan side as well because, again the RBI governor in the policy seem to indicate that rural demand is also catching up. Urban consumption is buoyant. What are the trends that you are seeing shaping there and what would retail loan growth for SBI look like in FY25?

A: I think it could be more in sync with the last quarter or maybe it will be even better than the last quarter. But yes, of course, the trends are more like what we have seen in the last quarters.

Q: Any number you could guide us to what, what sort of contribution?

A: It will not be in order for me at this point of time to give you any kind of number, but maybe we are declaring our results on May 9.

Q: On the deposit size from the initial numbers that banks have already released for the fourth quarter, that deposit momentum seems to be picking back up a little bit. CASA ratios have also improved sequentially for several banks, in the current liquidity environment, what are you seeing, what’s your sense?

A: It is not merely the growth, but one should look at the cost at which the growth is happening. So growth is possible, but at what price? While in the banking system, were very mindful in terms of the cost also and the yield on the book. So it’s not purely the growth but the quality of that growth number is very important.

Also Read | SBI refuses to disclose SOP for sale, redemption of electoral bonds in RTI reply

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SBI refuses to disclose SOP for sale, redemption of electoral bonds in RTI reply

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The State Bank of India (SBI) has refused to disclose its standard operating procedure for the sale and redemption of the electoral bonds that were issued to its authorised branches, citing the exemption given under “commercial confidence”, according to an RTI response.

In an application filed under the Right to Information (RTI) Act, transparency activist Anjali Bhardwaj sought the details of the standard operating procedure issued to the SBI’s authorised branches on the sale and redemption of the electoral bonds.

“Standard Operating Procedures (SOPs) of Electoral Bond Scheme-2018 issued to authorised branches from time to time are internal guidelines with regards to sale and redemption of electoral bonds (meant for internal circulation only), which is exempted under section 8(1)(d) of the Right to Information Act,” the response from M Kanna Babu, the central public information officer and deputy general manager of the SBI, said on March 30.

Section 8(1)(d) of the Act exempts from revelation “information including commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of a third party unless the competent authority is satisfied that larger public interest warrants the disclosure of such information”.

“It is shocking to note that even after the Supreme Court has struck down the electoral bonds scheme as unconstitutional and explicitly directed and ensured disclosure of all details of the EBs purchased and redeemed, the SBI continues to deny important information about the operation of the electoral bonds scheme,” Bhardwaj said.

She said the SOPs would reveal the official instructions governing the particulars of information that were to be stored as well as the form and manner in which information was to be maintained by the bank on the sale and redemption of the electoral bonds.

“It is relevant to note that the SBI cited the standard operating procedures in its application dated March 4, when it sought additional time of four months to comply with the Supreme Court’s judgment to disclose the details of the electoral bonds,” she said.

The RTI response from the SBI was sent within weeks of the apex court admonishing the bank for the non-disclosure of the unique alphanumeric numbers of the bonds in compliance with its directions.

The court said its order required disclosure, specifically of all details of the bonds, including the names of the purchaser,  amounts, and the dates of purchase.

A Constitution bench of the top court had directed the SBI to furnish to the Election Commission (EC) all details of the electoral bonds purchased, and as the case may be, redeemed by political parties, including the dates of purchase.

The bench said, “It has been submitted that the SBI has not disclosed the alpha-numeric numbers of the electoral bonds.” In its landmark verdict on February 15, the court scrapped the Centre’s electoral bonds scheme that allowed anonymous political funding, calling it “unconstitutional”, and ordered disclosure by the EC of the donors, the amounts donated by them, and the recipients by March 13.

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Do public sector banks shares have more steam or should you switch to private banks? Analysts explain

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of public sector banks (PSBs) have outperformed private sector banks (PVBs) in the past three years but it may be time to re-think, says global brokerage Bernstein. The analyst believes it’s time to switch back to private banks. Why?

Because, looking ahead, Bernstein sees a less promising trajectory for public sector banks as they struggle with weaker deposit growth (despite aggressive pricing) and much lower liquidity buffers (than what a lower loan-to-deposit ratio might suggest). That, in turn, results in weaker earnings growth versus private banks, it said in its latest report on March 10.

But is it all bad? The brokerage has downgraded State Bank of India (SBI) to market perform call but raised the target price to ₹780. This is because it sees better growth prospects for the largest public sector lender from a new-found willingness to raise capital fully priced in.

Bernstein is not the only one that holds this view.

On March 4, Kotak Institutional Equities pointed out that the deposit share of public banks is at 60% and private banks at 35%.

“Public banks have lost 200 basis points (bps) in market share largely to private banks since 4QFY23. This loss is visible in metropolitan regions after 2Q, which could be driven by the merger of HDFC group,” the Kotak report claimed.

The domestic brokerage, however, explained that it is awaiting a firm turnaround in deposit mobilisation. “We do see competition being fairly strong, with public banks likely to erode their market share slower than what was seen earlier, putting pressure on deposit shifts across players.”

Another trend seen in deposits is that individual deposits are higher for public banks and non-individual shares are higher for private banks, as per the report. And individual deposits are largely with public banks and the shift is a lot more gradual in nature.

Meanwhile, households dominate deposits at 60% and of these households, 30% of savings and 50% of term deposits come from senior citizens.

Reflecting on term deposits, the Kotak report said, the recent RBI update on quarterly deposits indicates that public banks have a 60% share in deposits but have lost 200 bps since 4Q largely to private banks.

Private banks have a marginally higher concentration of deposits in metropolitan markets compared to public banks. Also, deposit mobilisation by banks continued to remain skewed in the 1-3-year bucket and it continues to rise consistently. “There is a 10% point jump in the 7-8% interest rate bucket, suggesting we are moving closer to headline deposit rates. We should see deposit rates closer to peak levels,” it said.

But, is all well with private banks then?

As per its latest brokerage note, CLSA has downgraded HDFC Bank to outperform from buy and cut the target price to ₹1,650 from ₹2,050.

According to the brokerage, there are twin challenges on deposits — a high ask rate and a tough environment.

It said that improving yields offset by muted current account and savings account (CASA) accretion to keep net interest margin (NIM) recovery gradual. The brokerage believes NIM recovery will be more ‘U-shaped’ than ‘V-shaped’. It has trimmed FY25/26 earnings per share (EPS) estimates for HDFC Bank by 5%.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India’s largest lender gets a raise in target price to ₹850 despite its recent performance

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Domestic brokerage house Kotak Institutional Equities has reaffirmed its ‘Buy’ rating on State Bank of India (SBI), the country’s largest lender, and raised the target price to ₹850 from ₹760 per share earlier, despite its recent performance. The new target price suggests another upside of 14.4% from the current market levels.

SBI shares have rallied nearly 16% since the beginning of this year, as against a 1% return in the benchmark Nifty 50.

SBI was a non-participant in the record-breaking PSU rally last year. In a year when the PSE index gained 80% and the PSU Bank Index rose 33%, the SBI stoke grew just 4%.

In its note, Kotak said that it do not see a specific tailwind that would trigger re-rating for SBI in the short term. “We see SBI to outperform other PSU banks, given sharp convergence in multiples. We are valuing SBI at 1.4 times book and 10 times earnings for return on equity (RoE) at 15%,” it stated.

SBI withstood most concerns

Analysts at Kotak highlighted that the lender has withstood most concerns, with negligible impact on earnings. “We believe SBI has done better than feared on most issues that could have had a negative earnings impact.”

These issues, according to Kotak, could be specific conglomerate exposure, expected credit loss (ECL) provisions, mark-to-market (MTM) losses, unsecured loan growth, wage settlement and capital adequacy ratio (CAR), including an risk-weighted asset (RWA) increase.

Addressing these have probably resulted in the current outperformance, the brokerage noted while adding that the tendency of investors appears to be conservative by looking at the actual outcome before turning positive on the bank.

Steady performance ahead

Kotak expects the country’s largest lender to deliver a steady performance, adjusting for various one-offs. “Loan growth is likely to be lower than the industry average. The positive outcome of low CAR is that growth is likely to be of better quality. We expect NIM at elevated levels on a through-the-cycle basis, as it is the primary revenue source,” it said.

According to Kotak, the premium at which SBI is currently trading to Bank of Baroda and with other mid-tier public banks has declined sharply and is closer to the best of times.

On the other hand, SBI’s discount with HDFC Bank has narrowed sharply as well, the brokerage said.

Among public banks, Kotak believe that SBI has done well to defend its market share on liabilities, while its underwriting has been better-than-expected. “We shall prefer SBI among public banks,” it said.

Though analysts at Kotak expect the outperformance with private banks to be slower, but believe that there is headroom as available.

“We are building in a call that the extent of the differential in return ratios, loan growth, NIM and credit costs is not likely to be too different in the medium term, until we have clear evidence of weak underwriting from these players. Until then, relative performance is likely to have a higher weightage in stock ideas,” the brokerage said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow