SBI can fend off rising risks In personal loans, says S&P Ratings

International rating agency Standard and Poor’s (S&P Global Ratings) on Tuesday said that the State Bank of India (SBI) can manage any rise in risks to its personal loans pool and is likely to sustain the improving trend in profitability.

SBI's personal loans are growing faster than the rest of its portfolio. However, the bank's customer selection mitigates the associated risks. About 83 per cent of these exposures are to military and government employees, and another 12 per cent are to employees of public sector entities and blue-chip private corporates, S&P Global Ratings said in a statement.

The bank has a corporate salary relationship with these customers. Default incidence is low in this book given stable employment conditions in India.

As such, SBI's non-performing loans ratio (NPL) in this segment remains low at 0.7 per cent over the past 12 months.

The asset quality of SBI (BBB-/Stable) is likely to stay stable amid rising stress in small-ticket personal loans aka those less than Rs 50,000 in India's financial sector. The bank has sizable exposure to unsecured retail loans, at about 13 per cent of total loans, of which 9.0 per cent are personal loans. Exposure to small-ticket personal loans is limited, it added.

SBI's NPL ratio has declined across all major segments and stood at 2.6 per cent at end-September 2023 (3.5 per cent a year earlier). Restructured loans were also low at 0.6 per cent of total loans. The bank reported a return on assets of 1.1 per cent annualised for the 6 months ended Sept. 30, 2023 (0.96 per cent for fiscal 2023).

The bank will benefit from strong economic and employment conditions in India. “We believe SBI will continue to have low credit costs amid a benign credit cycle in India, mitigating pressure on margins from a higher cost of deposits,” S&P Global said.  

The agency said that SBI's credit growth will stay broad-based and robust, mirroring India's economic growth. "We forecast 13-15 per cent credit growth over the next 12-18 months. The bank's credit growth of 12.7 per cent year-on-year as of Sept. 30, 2023, was driven mainly by retail and small business loans," it said.

Corporate growth could pick up over the next few quarters, given management has indicated a strong pipeline. Improving earnings should support stable to mildly improving capitalization, the rating agency said.