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State Bank of India
Takeaways: Meeting with SME Head
Event
ƒ Steps being taken to improve SME asset quality: We met with Mr. Manas
Kumar Nag, who heads the SME segment at SBI. The key takeaway was that
despite rising rates, asset quality in the SME segment for SBI is likely to show
modest improvements in FY12 over FY11 (on a full year basis) due to better
risk monitoring mechanisms and renewed focus on recoveries. However,
there could be some pain from restructured SME book in the near term.
Impact
ƒ Growth to slow down a bit; stress segments are still textiles and gems
and jewellery: SBI grew its SME portfolio by 23% last year and expects
growth to be around 20% this year. The SME head stated that the stress
segments continue to be textiles and gems and jewellery. Overall, slippages
from restructured SME assets have been to the tune of 15%, in line with the
performance of other restructured assets. There could be some more
slippages from restructured SME assets in the coming few quarters.
ƒ Technological initiatives taken for better risk monitoring and recoveries:
The SME head clarified that the bank has upgraded its system to throw alerts
to the respective centre managers on 3 different SME categories viz: 7–30
days past due, 31–59 days past due and 60–90 days past due so that it can
detect early assets that are under stress and accordingly, pursue recoveries
of them proactively.
ƒ Upgrading to better rating system designed by CRISIL: The bank
previously rated most of the smaller SME accounts internally; however, within
the next three months, the bank is expected to migrate to a better software
module designed by CRISIL which helps them specifically in smaller accounts
where funding is less than Rs50m.
ƒ Other initiatives helping the cause – cluster financing model and SME
guarantee scheme: The SME guarantee scheme launched by SIDBI, which
guarantees nearly 75% of the loan amount of SMEs, is also helping the cause
and SBI has been insisting all the small SME accounts opt for the guarantee
scheme if they want to avail the loan. Most of the small SME accounts don’t
have any collateral. Also, SBI is focusing on a cluster financing model rather
than financing SMEs on a stand-alone basis. The cluster financing model
helps SBI to focus on clusters in a particular region eg, auto ancillaries in
Pune, or textile units in South. It helps SBI in mitigating the risks as it has a
better understanding of the clusters and its behavioural pattern compared to
financing SMEs on a standalone basis.
Earnings and target price revision
ƒ No change.
Price catalyst
ƒ 12-month price target: Rs2,450.00 based on a Sum of parts methodology.
ƒ Catalyst: Improving asset quality and strong earnings growth in second half.
Action and recommendation
ƒ We maintain our Neutral rating on stock with TP of Rs2,450
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
Takeaways: Meeting with SME Head
Event
ƒ Steps being taken to improve SME asset quality: We met with Mr. Manas
Kumar Nag, who heads the SME segment at SBI. The key takeaway was that
despite rising rates, asset quality in the SME segment for SBI is likely to show
modest improvements in FY12 over FY11 (on a full year basis) due to better
risk monitoring mechanisms and renewed focus on recoveries. However,
there could be some pain from restructured SME book in the near term.
Impact
ƒ Growth to slow down a bit; stress segments are still textiles and gems
and jewellery: SBI grew its SME portfolio by 23% last year and expects
growth to be around 20% this year. The SME head stated that the stress
segments continue to be textiles and gems and jewellery. Overall, slippages
from restructured SME assets have been to the tune of 15%, in line with the
performance of other restructured assets. There could be some more
slippages from restructured SME assets in the coming few quarters.
ƒ Technological initiatives taken for better risk monitoring and recoveries:
The SME head clarified that the bank has upgraded its system to throw alerts
to the respective centre managers on 3 different SME categories viz: 7–30
days past due, 31–59 days past due and 60–90 days past due so that it can
detect early assets that are under stress and accordingly, pursue recoveries
of them proactively.
ƒ Upgrading to better rating system designed by CRISIL: The bank
previously rated most of the smaller SME accounts internally; however, within
the next three months, the bank is expected to migrate to a better software
module designed by CRISIL which helps them specifically in smaller accounts
where funding is less than Rs50m.
ƒ Other initiatives helping the cause – cluster financing model and SME
guarantee scheme: The SME guarantee scheme launched by SIDBI, which
guarantees nearly 75% of the loan amount of SMEs, is also helping the cause
and SBI has been insisting all the small SME accounts opt for the guarantee
scheme if they want to avail the loan. Most of the small SME accounts don’t
have any collateral. Also, SBI is focusing on a cluster financing model rather
than financing SMEs on a stand-alone basis. The cluster financing model
helps SBI to focus on clusters in a particular region eg, auto ancillaries in
Pune, or textile units in South. It helps SBI in mitigating the risks as it has a
better understanding of the clusters and its behavioural pattern compared to
financing SMEs on a standalone basis.
Earnings and target price revision
ƒ No change.
Price catalyst
ƒ 12-month price target: Rs2,450.00 based on a Sum of parts methodology.
ƒ Catalyst: Improving asset quality and strong earnings growth in second half.
Action and recommendation
ƒ We maintain our Neutral rating on stock with TP of Rs2,450
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