SBI - Minimal Impact Of RBI Circular; Loan Growth Key: Nirmal Bang

Nirmal Bang Report

We hosted the management of State Bank of India, at our Investor conference held on November 21, 2023.

SBI is confident of clocking double-digit loan growth in FY24, in line with system credit growth, with its key focus areas being small and medium enterprise, secured retail, agriculture, mid-corporate segments and financing electric vehicles, solar power and green energy in the private sector.

For maintaining/improving net interest margins in the long term, it will focus on improving credit/deposit ratio, current account and savings account growth and share of higher yielding retail/SME loans.

It is also looking at shoring up its fee and forex income, which will be return on asset accretive in the long term.

After adjusting for the 50 basis points impact of the Reserve Bank of India circular on higher risk weights and 109bps addition of H1 FY24 profit, the CET-1 remains comfortable at 10.5%.

It will hike its lending rates in the affected segments, in line with industry trend. As per its disclosures, while the bank has already slowed down on Xpress credit growth, after our observation of the non-banking financial company and trading segment exposure from its Basel III disclosures (part of which is impacted by RBI circular) growing at 23.5% YoY, we are of the view that it may have to slow down a bit on lending to some NBFCs impacted by the circular.

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 versus 13.1% loan growth estimated earlier and 3 bps decline in NIM in Q3 FY24.

Keeping our target valuation constant at 1.1 times its September 2025E adjusted book value and adding subsidiary valuation of Rs 198/share, we revise our target price from Rs 714 earlier to Rs 709. Maintain 'Buy'.

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