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State Bank of India
Asset quality pressures may ease going forward, but are definitely not over. The
positives are that some of the 1H provisions (countercyclical, new RBI standards)
are now over. On the other hand, however, delinquencies could remain elevated
for some more time – both from the restructured book and the general book.
Management does not attribute its underperformance (vs peers) on NPLs purely
to weak underwriting. It is strengthening its monitoring capabilities, and also
believes that it will face some structurally higher NPLs given its size – SBI
struggles to bail out of potential problems, unlike smaller banks. Also, the
granular, small-ticket agri loans is a source of stress – management is closely
watching whether there is an element of moral hazard creeping in there.
Infrastructure – SBI remains sanguine about the quality of its book. Their
exposure to weak power assets (weak feedstock arrangements, high merchant
power exposure) is minimal and they do not see a serious problem with projects
under implementation. Management logic is that some of these may see delayed
implementation (and hence restructuring), but losses are very unlikely once they
commence production. Importantly, it feels that the major problems for the power
sector can be resolved by regulators and policymakers – they are not underlying
economic problems.
SBI have seen very little savings bank attrition so far, and thus are not planning
any moves on savings bank rates in the immediate term. On its 8.5% wholesale
deposit rate, the bank sees it more as a CD-substitution exercise – it’s unlikely to
cannibalize current accounts as wholesale rates have been elevated for a while.
The product is very short-term - management believes that makes it easy to tweak
going forward.
Management sees no major alarms on capital. It needs Rs 80bn to cross 8% T1 by
March 2012, and will probably raise that as a combination from the government
and the market. If the government infusion does not come through, management
believes that there is enough headroom on perpetual bonds to take the T1 above
8% by March 2012.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
Asset quality pressures may ease going forward, but are definitely not over. The
positives are that some of the 1H provisions (countercyclical, new RBI standards)
are now over. On the other hand, however, delinquencies could remain elevated
for some more time – both from the restructured book and the general book.
Management does not attribute its underperformance (vs peers) on NPLs purely
to weak underwriting. It is strengthening its monitoring capabilities, and also
believes that it will face some structurally higher NPLs given its size – SBI
struggles to bail out of potential problems, unlike smaller banks. Also, the
granular, small-ticket agri loans is a source of stress – management is closely
watching whether there is an element of moral hazard creeping in there.
Infrastructure – SBI remains sanguine about the quality of its book. Their
exposure to weak power assets (weak feedstock arrangements, high merchant
power exposure) is minimal and they do not see a serious problem with projects
under implementation. Management logic is that some of these may see delayed
implementation (and hence restructuring), but losses are very unlikely once they
commence production. Importantly, it feels that the major problems for the power
sector can be resolved by regulators and policymakers – they are not underlying
economic problems.
SBI have seen very little savings bank attrition so far, and thus are not planning
any moves on savings bank rates in the immediate term. On its 8.5% wholesale
deposit rate, the bank sees it more as a CD-substitution exercise – it’s unlikely to
cannibalize current accounts as wholesale rates have been elevated for a while.
The product is very short-term - management believes that makes it easy to tweak
going forward.
Management sees no major alarms on capital. It needs Rs 80bn to cross 8% T1 by
March 2012, and will probably raise that as a combination from the government
and the market. If the government infusion does not come through, management
believes that there is enough headroom on perpetual bonds to take the T1 above
8% by March 2012.
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