SBI funding to real estate projects an opportunity to 'Buy' post correction

Finance Minister Nirmala Sitharaman said the government will put in Rs 10,000 crore in this AIF while SBI & LIC would provide Rs 15,000 crore, taking the total size to Rs 25,000 crore

State Bank of India (SBI) gained 1 per cent in the early morning deals to trade at Rs 321.7 apiece on the BSE on Thursday after the Union Cabinet on Wednesday approved setting up of a Rs 25,000-crore alternative investment fund (AIF) to revive around 1,600 stalled housing projects across top cities in the country.

At 10:13 AM, the stock was trading 0.8 per cent higher at Rs 320.1, as against a 0.25 per cent rise in the S&P BSE Sensex.

Announcing the decision, Finance Minister Nirmala Sitharaman said the government will put in Rs 10,000 crore in this AIF while SBI and LIC would provide Rs 15,000 crore, taking the total size to Rs 25,000 crore.

Analysts gave thumbs-up to the proposal saying the much-awaited package for the real estate sector would likely revive most of the stalled projects in Mumbai and the National Capital Region (NCR) and would lessen the stress in the financial sector with respect to non-performing assets (NPAs) in the sector

"The decision to provide funding to revive the stalled but viable housing projects is a positive move for both, SBI and the (real estate and financial) sector in general. The corpus would stop incremental stressed-assets in banks and housing finance corporations," says Ambareesh Baliga, an independent market expert.

Wednesday's decision paved the way to include projects declared as NPA and those which are undergoing insolvency at the National Company Law Tribunal (NCLT) to be considered for financing from the AIF, as against a previous decision announced by the FM in September, which kept NPA and insolvency projects out of the AIF purview. The funding will be possible only if they are registered under the Real Estate (Regulation and Development) Act or RERA. However, those which have already got orders from NCLT for liquidation will not be considered.

In a media address post reporting its September quarter results, Rajnish Kumar, chairman, SBI had said that an internal study by the bank concluded that there has been a pick-up in the housing sales in Hyderabad, Kolkata and Chennai. It, however, has declined in the NCR region, which, he said, is the worst hit.

“SBI is not seeing any elevated stress in housing portfolio, but we will have to watch,” Kumar had said.

The Mumbai Metropolitan Region and the NCR are two of the worst-hit property markets in the country, with 95,000 and 195,000 stuck projects, respectively. About 55,000 units more are stuck in Tier-II cities. With the new Centre-sponsored funding, about 4,58,000 housing units would be revived.

WHAT NEXT FOR THE STOCK?

Fundamentally, the bank has been seeing a dream run at the bourses since it reported its Q2FY20 results. The country's largest public lender logged a standalone net profit of Rs 3,012 crore during the recently concluded quarter, up 218 per cent YoY, from a profit of Rs 944.87 crore reported in Q2FY19. Further, the gross slippages nearly halved during the quarter under review to Rs. 8,805 crore, down 45.68 per cent sequentially, from Rs.16,212 crores reported during Q1FY20.

Since then, the stock has outperformed the benchmark S&P BSE Sensex by surging 21 per cent, as against a 4 per cent rise in the index.

"The worst for the PSU banking space is over in terms of stressed assets. The concern now remains regarding credit growth. As for SBI, incumbent investors should stay put in the stock, while new investors should buy the stock after correction," says Baliga.

Analysts at HDFC Securities, too, maintain a 'buy' on the stock with a target price of Rs 389.

"Much of the provisioning on existing NPAs is complete, ageing provisions to be minimal, indicated by PCR. Incremental provisions will be towards fresh stress. The data presented indicates that the management is actively pursuing other means of recovery (OFS, DRT, SARFAESI etc. i.e. ex-NCLT)," it said in its result review report.