Equity raise, qualitative growth, likely challenges for incumbent SBI chief

SBI's share of loans under moratorium was the lowest among PSBs at 10 per cent; clearer picture on asset quality likely by December

The State Bank of India (SBI) stock might have been a laggard under Rajnish Kumar’s leadership. This was the case with all public-sector banks (PSBs). However, Kumar did what few SBI chairmen have accomplished — tuned the SBI stock into a “must-have” for brokerages, including foreign houses such as Morgan Stanley, Jefferies, Macquarie, and UBS, which generally don’t favour PSBs. With 92 per cent ‘buy’ ratings (of 53 brokerages covering the bank according to Bloomberg), optimism is at its highest.

At 83.6 per cent, the provision coverage ratio (PCR) suggests that a major chunk of legacy loans have been taken care of. The loan book tilted in favour of retail — 55:45 being the retail to wholesale split. Analysts say Dinesh Khara is taking over when the bank is in the best shape. “Unless there are any major philosophical differences between Khara and Kumar, churn in the bank’s functioning is unlikely,” says an analyst with a domestic brokerage.

But, that doesn’t mean Khara’s term will be a cakewalk. A little over 10 per cent of SBI’s loan outstanding were under moratorium. Until a few weeks back, Kumar affirmed that the requests for loan restructuring weren’t high. With time available till December, Khara’s first major task will be to handle the loans that come for recast. Whether SBI’s gross non-performing assets (NPAs) ratio, which fell to 5.4 per cent in the June quarter (down over 200 basis point year-on-year), will continue its downward momentum or get disrupted due to the pandemic needs monitoring. Retail and MSMEs are two segments where stress could emerge.

A sharp trend reversal in NPAs might hamper SBI’s position among investors and analysts, which may hurt the bank given its Rs 20,000 crore fundraising plans. This would be Khara’s second major task, as SBI might be hitting the market after a gap of three years. The previous fundraise (qualified institutional placement) in October 2017 helmed by Arundhati Bhattacharya was a huge success. Can Khara bring back the magic, just when investors lapped up stocks of private banks when they went shopping for capital, will be interesting to watch.

As for growth, he has set a target of 6-7 per cent in FY21. While that might not be tough to achieve, can it ring in qualitative growth is the question. With the retail segment beginning to show pressure and limited well-rated corporates to lend to, quality growth would be tough.