Should You Buy SBI Now?
SBI is the largest public sector bank in India, with a network of over 22,000 branches and 58,000 ATMs. It offers a range of products and services for SMEs and retail customers, such as loans, deposits, cards, digital banking, insurance, and wealth management.
But what makes SBI stand out from the competition? How does it manage to achieve healthy growth and profitability in a challenging environment? What are its strategies and priorities for the future?
I had the opportunity to meet Dinesh Khara, the Chairman of SBI. He shared some valuable insights and takeaways from his experience and vision. Here are some of the key points he discussed:
- SBI has become quality conscious more than ever. Branch KRAs now include return on risk weighted assets (RoRWA) versus focus on top-line earlier. This means that SBI is not just chasing growth, but also ensuring that it is generating adequate returns on its assets. It is also monitoring and managing its risks more effectively, by using data analytics and technology.
- Credit growth to remain healthy at 13– 14% YoY; deposits growth to be a shade lower and thus a boost to credit deposits ratio. SBI expects to maintain a robust credit growth in the coming quarters, driven by strong demand from SMEs and retail segments. It also expects its deposits growth to be slightly lower than credit growth, which will improve its credit deposits ratio and enhance its margins.
- Despite rising competition, SBI is confident of healthy growth in SME and retail. SBI has a competitive edge in these segments, due to its large customer base, wide reach, low cost of funds, and customized solutions. It also leverages its digital platforms, such as YONO (You Only Need One), to offer convenience and value-added services to its customers. SBI also has a strong recovery mechanism and a dedicated team for resolving stressed assets.
- Near-term NIM is likely to be broadly stable (or 5–7 bps dip) QoQ. SBI expects its net interest margin (NIM) to remain stable or marginally decline in the near term, due to the impact of interest rate cuts and excess liquidity in the system. However, it expects to offset this impact by improving its asset quality, reducing slippages, and increasing fee income.
- Some rise in opex due to step-up in wage bipartite provisions. SBI has increased its provisions for wage revision as per the bipartite settlement with its employees’ unions. This will result in some increase in its operating expenses in the short term. However, SBI expects to rationalize its costs by optimizing its branch network, enhancing its productivity, and leveraging technology.
- The bank is making serious efforts to pare Agri GNPAs to single-digit. SBI has a high exposure to the agriculture sector, which accounts for about 12% of its gross non-performing assets (GNPAs). SBI is taking various measures to reduce its Agri GNPAs, such as restructuring eligible loans under the COVID-19 relief package, implementing the Kisan Credit Card scheme, conducting regular follow-ups and recovery camps, and collaborating with state governments and other agencies.
- The bank would rely on internal accruals for capital augmentation. SBI has a comfortable capital adequacy ratio (CAR) of 14.5%, which is well above the regulatory requirement. It also has a strong internal accruals capacity, which enables it to meet its capital needs without diluting its equity. SBI does not plan to raise any external capital in the near future, unless there is an attractive opportunity or a strategic requirement.
- SBI endeavours to sustain the current (~1.2%) RoA with pressure on opex to be offset by improving fee. SBI aims to maintain its return on assets (RoA) at around 1.2%, which is comparable with the best performing public sector banks in India. It expects to achieve this by improving its asset quality, increasing its fee income from various sources such as cross-selling, digital transactions, treasury operations, etc., and controlling its operating expenses.
These are some of the key takeaways from my meeting with Dinesh Khara, the Chairman of SBI. I hope you found them useful and informative.
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