Macquarie: State Bank of India Getting to know the new Chairman

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State Bank of India
Getting to know the new Chairman
Event
 Mr Pratip Chaudhuri, currently a deputy managing director and group
executive of international banking at SBI, is likely to be appointed as the new
Chairman of SBI when the incumbent Chairman Mr. Bhatt retires on March
11. The appointment is subject to approval from the cabinet.

Impact
 Has a rich, diversified experience: During his illustrious career spanning
35+ years in SBI group, Mr. Chaudhuri has handled several important
functions. In his current role, he heads the international banking business of
SBI. Prior to this, he was the MD of State Bank of Saurashtra (associate of
SBI) which was eventually merged with SBI. He has also been the CIO of SBI
Mutual Fund and has handled corporate banking and merchant banking
functions in the past. He also worked as the Chief General Manager of the
Chennai Circle and General Manager of the Mid-Corporate Group in the New
Delhi region.
 Could be appointed for a term of 3+ years: According to news reports, the
government wanted to select a person with at least two years of residual
service for the chairman’s post. Mr. Chaudhuri, 56 years old and with rich
experience in banking, fits the eligibility criteria. A longer management tenure
would ensure some stability, in our view.
 What is our view – Is Mr Chaudhuri the ideal replacement for Mr Bhatt?
Mr. Bhatt in our view had done a commendable job of improving the liabilities
franchise. CASA was taken up from a low of 38% to 47% – not an easy task
for a large bank like SBI with a massive balance sheet. Also Mr. Bhatt did a
good job of improving the fee income profile with the fee to average assets
ratio increasing from 80bp to 100bp during his tenure. It’s too early to
comment whether under the leadership of Mr. Chaudhuri such momentum is
sustainable. Press reports suggest that he intends to take the international
banking business from 16% to 25% in the next few years – something which
we believe shouldn’t be the main focus area. In our view, the domestic market
is far more lucrative than exploring international business opportunities.
Nevertheless, Mr. Chaudhuri does have some large shoes to fill in.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs2,300.00 based on a Sum of Parts methodology.
 Catalyst: Continued stress on asset quality and higher opex
Action and recommendation
 Stock has corrected sharply but we still see some downside: We
reiterate Underperform on SBI with a TP of Rs2,300. Despite the stock having
fallen 25% from its recent highs, we see more downside. Consensus is yet to
downgrade earnings for SBI, which could be the catalyst going ahead.