SBI share price is up 5% as brokerages raise target prices to over ₹200
- State Bank of India’s (SBI) share price is up by 5% during morning trade on June 8.
- Brokerages expect India’s largest bank to breach the ₹200-mark after it reported a 315% jump in profits during the fourth quarter.
- SBI is also on the hunt for $1.5 billion in long term funds to meet its capital requirements.
Credit Suisse believes that SBI has a lower vulnerability to bad loans as compared to other public sector banks. Even though there have been large rate cuts across the block, the brokerage firm expects SBI to post single-digit loan growth in the current financial year.
AdvertisementJefferies forecasts that SBI’s loan growth and lower risk comes from its strong deposit base, which will help maintain the bank’s asset quality — slippages will be manageable and the moratorium will only affect 23% of SBI’s existing loans.
*Implied gains are compared to the closing price on June 5
|Brokerage||Target price||Implied gains|
More value to be unlocked as SBI plans to raise $1.5 billion
SBI is expected to sell off some of its stake in its subsidiaries, SBI Life Insurance and SBI General Insurance to meet its capital needs, which could unlock more value for its shareholders.
The bank has plans to raise around $1.5 billion in long term funds. It will hold its next board meeting of June 11 to discuss whether that should be done through a public offer or private placement of senior unsecured notes in a convertible currency, according to the filing with the National Stock Exchange (NSE).
SBI’s drop in non-performing assets (NPAs)
During the fourth-quarter earnings, SBI reported that its bad loans were under control with gross non-performing assets (NPA) dropping by 42 basis points (bps) and gross NPAs down by 79 bps despite the nationwide lockdown announced on March 25 that brought the industry to a halt. A 100 basis points make for a percent.
AdvertisementIts profit hit a record-high but was still lower than expected due to higher loan loss provisions as the bank gears up for an influx of bad loans with the Indian economy expected to deliver a negative GDP.
Preparing for what may come after the RBI’s moratorium comes to an end, SBI increased its provision coverage ratio to 83.61%. Going forward, its profit will also come under pressure due to employee costs and lower net interest margin (NIM) growth.
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