Moneycontrol Bureau
Betting big on State Bank of India, Deutsche Bank says that it is the only PSU bank gaining market share with right basics, doing well in retail loans and becoming more efficient bank with right investments in digital. The brokerage has also raised target price on SBI by 13 percent to Rs 270 per share with a buy rating.
It says that SBI's business strategy focusing on net interest margin (NIM), fees and current and savings account ratio (CASA) are right on track. It is also confident that consolidation with its subsidiary may further improve efficiency.
Deutsche Bank believes that the worst of non-performing loan (NPL) recognition and credit costs are behind while slippages at 2.7 percent and credit costs at 2.1 percent in FY16 should gradually improve. FY16 credit costs were at 220 basis points versus last six-year average of 120 bps. It expects gradual improvement in FY17 return on equity (RoEs).
The India's largest lender State Bank of India 's (SBI) fourth quarter FY16 was impacted by more than 2-fold increase in provisions and slow growth in net interest income. Provisions for non-performing assets shot up significantly by 58.8 percent quarter-on-quarter and 143.5 percent year-on-year to Rs 12,139.2 crore in quarter ended March 2016. Asset quality in Q4 also worsened due to higher-than-expected slippages of Rs 30,313 crore (against Rs 20,692 crore QoQ and forecast of Rs 20,000-25,000 crore). However, Deutsche Bank expects cost growth to be much slower than historical trends as SBI has been addressing its cost issues.
Over the past year, loan book has grown at 12.6 percent, retail loans are up by 20 percent and mortgage loan growth has remained consistent at 20 percent.
Shares of SBI gained 2 percent intraday on Thursday. At 11:27 hrs State Bank of India was quoting at Rs 220.75, up Rs 3.55, or 1.63 percent on the BSE.
Posted by Nasrin SultanaFollow @NasrinzStory
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