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State Bank of India (SBI.BO) Rs2,795.05
Equity Research
Another step to correct past errors, discontinues teaser loans
News
Following the base rate and PLR hike, SBI today discontinued the special
home loan scheme (teaser loans) effective 1st May on concerns raised by
the central bank. Home loans will now be linked to the base rate, with rates
ranging between base rate + 1% to base rate + 1.75% depending on the
loan amount. The effective rate for loans up to Rs3 mn has thus far been
changed to 9.5% floating from the current level of 9%/9.75%/9.75%/10%
year 1 to 4. SBI also changed its auto loan rates to base rate + 225 bps or
10.75% vs. the 9.25% to 11.25% year 1 to 7. Simultaneously, the bank has
withdrawn prepayment penalty on auto loans vs. 2% charged earlier.
Analysis
(1) The current o/s loan amount against the special housing scheme (that
has been in existence since Jan-2009) stands at Rs368bn or c43% of its
home loan portfolio. As per RBI requirement, SBI has to make an additional
provision of Rs5.87bn (at 2% vs. 0.4% currently or 11.5% of our 4QFY2011
pre-tax profit estimate) on this portfolio. The bank is trying to get an
exemption now that it has discontinued the teaser loan scheme. The
provisions will be released over the next two years as these loans move
out of the teaser loan scheme and are linked to the base rate/PLR. (2) The
bank’s spreads in the first year on these loans will now be higher by
around 50 bps, though this may not change the overall IRR and spreads on
the loan through the tenure as under the existing scheme the rate
increased progressively. For the new scheme to be spread neutral through
the tenure, base rates will have to rise.
Implications
The move away from the special scheme is a long-term positive for SBI as
in a rising rate environment it will enable the bank to better protect
margins. It will also be positive for the Industry in reducing pricing
competition. As discussed in our earlier note, SBI is still behind the curve
vs. other banks and would need to raise the base rate and PLR by around
50bps. No changes to estimates and price targets.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India (SBI.BO) Rs2,795.05
Equity Research
Another step to correct past errors, discontinues teaser loans
News
Following the base rate and PLR hike, SBI today discontinued the special
home loan scheme (teaser loans) effective 1st May on concerns raised by
the central bank. Home loans will now be linked to the base rate, with rates
ranging between base rate + 1% to base rate + 1.75% depending on the
loan amount. The effective rate for loans up to Rs3 mn has thus far been
changed to 9.5% floating from the current level of 9%/9.75%/9.75%/10%
year 1 to 4. SBI also changed its auto loan rates to base rate + 225 bps or
10.75% vs. the 9.25% to 11.25% year 1 to 7. Simultaneously, the bank has
withdrawn prepayment penalty on auto loans vs. 2% charged earlier.
Analysis
has been in existence since Jan-2009) stands at Rs368bn or c43% of its
home loan portfolio. As per RBI requirement, SBI has to make an additional
provision of Rs5.87bn (at 2% vs. 0.4% currently or 11.5% of our 4QFY2011
pre-tax profit estimate) on this portfolio. The bank is trying to get an
exemption now that it has discontinued the teaser loan scheme. The
provisions will be released over the next two years as these loans move
out of the teaser loan scheme and are linked to the base rate/PLR. (2) The
bank’s spreads in the first year on these loans will now be higher by
around 50 bps, though this may not change the overall IRR and spreads on
the loan through the tenure as under the existing scheme the rate
increased progressively. For the new scheme to be spread neutral through
the tenure, base rates will have to rise.
Implications
The move away from the special scheme is a long-term positive for SBI as
in a rising rate environment it will enable the bank to better protect
margins. It will also be positive for the Industry in reducing pricing
competition. As discussed in our earlier note, SBI is still behind the curve
vs. other banks and would need to raise the base rate and PLR by around
50bps. No changes to estimates and price targets.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
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