SBI Does Not See Major Impact From RBI's Risk Weights On NBFCs Lending; Motilal Gives Buy For Rs 700 TP

India's largest PSU lender, State Bank Of India (SBI) does not expect any significant challenge for banks from the latest risk weight hike by RBI on unsecured consumer credits, personal loans and credit card dues, as per brokerage Motilal Oswal in its interaction with the lender's chairman Dinesh Khara. SBI continues to be Motilal's preferred pick and hence the brokerage has recommended buying for a target price of Rs 700.

As per Motilal's note, SBI indicated that the recent increase in RWA by the RBI should not pose any significant challenge for the bank. The overall impact is estimated to be 49bp - of which 28bp is attributed to unsecured loans and 21bp is due to lending to NBFCs (we earlier in
our report estimated the impact to be at 44bp). The bank believes that it is well placed to absorb this impact, as its full-year profit will keep CET-1 in the comfortable zone.

Further, SBI's loan growth remains healthy and the bank has guided for mid-teen growth over the medium term while keeping asset quality metrics under control. SBI expects limited impact on growth due to recent regulations, as the loan book is broad-based.

The manufacturing, export, renewables, batteries and EV segments are likely to be the key growth drivers, it added.

Meanwhile, the brokerage highlighted that asset quality has remained well under control with constant moderations in GNPA/NNPA ratios and overall stress
pool. The bank has thus witnessed 97bp/16bp YoY decline in GNPA/NNPA to 2.55%/0.64% in 2QFY24.

That being said, Motilal cited that SBI does not expect the NPA cycle to be like what was witnessed earlier. Interest rate risk can be converted into credit risk more so for entities that have been aggressive in unsecured loans.

Also, SBI does not plan to expand its Banca channel partnerships in insurance. There are no plans to review the commission rate that SBIN earns from the sale of its life insurance business, it added. Apart from that, the bank expects to grow by 30% YoY in FY24 through its YONO platform.

On the valuation, Motilal's note said, "SBIN's robust performance has been aided by strong loan growth and lower provisions. Opex has been running elevated due to high wage provisions affecting PPoP growth. NIMs have declined in recent quarters and the management has guided for broadly stable margins (3-5bp downside bias) as the bank has levers in place (CD ratio, MCLR re-pricing) to mitigate the impact of the rising cost of deposits."

Further, Motilal added, "The asset quality performance remains strong with consistent improvements in headline asset quality ratios, while the restructured book remains under control at 0.6%, along with lower SMA pool at 12bp of loans. We estimate SBIN to deliver FY25E RoA/RoE of 1.1%/18.3%. We believe that the bank is well poised to deliver >1% RoA on a sustainable basis. We reiterate BUY with a TP of INR700 (1.1x FY25E ABV + INR202 from subs). SBIN remains one of our preferred picks in the sector."

From the current price level, there is a potential of over 22% upside in SBI. Last week, on Friday, SBI shares ended at Rs 571.85 apiece up by 1.3% with an m-cap of Rs 5,10,353.93 crore.

Moreover, brokerage Nirmal Bang in its latest note said, "We have marginally tweaked our earnings estimates for SBI by 1.1%/3.4% for FY24E/FY25E on assumption of 12% loan growth in FY24E vs 13.1% loan growth estimated earlier and 3bps decline in NIM in 3QFY24. Keeping our target valuation constant at 1.1x its Sept. 2025E ABV and adding a subsidiary valuation of Rs 198/share, we revise our target price (TP) from Rs714 earlier to Rs709. Maintain BUY."

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.