Public sector lender State Bank of India (SBI) is likely to be the major beneficiary of the systemic increase in credit demand, led by corporate credit growth.
Analysts at JM Financial Institutional Securities Ltd note that with increasing signs of pick-up in corporate demand and expected capital expenditure in FY24, SBI is one of the best participants in the segment.
Even though the share of retail loans in its portfolio has increased over the past few quarters to 36% in FY13 from 31% in FY10, a gradual increase in corporate credit share is likely, it said in a September 11 report. Having said. ,
In simple words, SBI’s credit growth is expected to outpace the industry’s growth.
“Deposit growth for SBI has lagged credit growth which is in line with the industry trend and now that we enter a seasonally strong 2H with stable demand environment, we can see the deposit race heating up. We believe that SBI’s liability strength should continue to keep it in good shape, partly aided by the low-CD ratio (70% as of Q23),” the report added. Analysts forecast credit growth of 16% for SBI during FY22-24.
The report further said that SBI’s core fundamentals remain on a strong footing and improving systemic growth will lead to incremental re-ratings for the stock.
According to the broking firm, in Q1FY23, the bank saw a blip in margins, which should normalize going forward as the liability franchise of the bank is one of the best in the segment.
While the bank may need to raise equity capital in the next 12-24 months (CET1), stake sale in subsidiaries (SBI Fund, SBI General Insurance) is another option to raise capital and delay the eventual dilution can. “Even at current valuations, the capital raised would be the book value of equity per share (BVPS) and as such, we are not openly concerned,” the JM Financial report said.
Meanwhile, SBI stock is up nearly 18% so far this calendar year, beating the 11% return of the sector index Nifty Bank.
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