SBI Chairman shares views on PSU bank; stock price target Rs 730, says ICICI Securities

ICICI Securities, which met State Bank of India Ltd (SBI) Chairman Dinesh Khara recently, said the PSU bank has become quality conscious more than ever and that it sounded comfortable on retail and corporate asset quality, even as there a some noise over unsecured retail asset quality in select pockets.

The PSU lender, ICICI Securities said, has identified agri as the new frontier, as the segment still has over double-digit gross non performing assets (NPAs), adding that plans are to leverage digital and SBOSS (100 per cent operational subsidiary) to engage, monitor and collect payments.

"SBI is also actively moving away from low-value KCC towards high-value allied Agri and asset-backed loans. The bank could also favour buying PSLC, as against going for agri lending below certain risk thresholds. We appreciate its efforts on tackling agri GNPAs. We continue to model-in benign credit costs for FY24E/FY25E," the brokerage said in its latest note.

The key takeaways from meeting with Khara included the management view that the credit growth will remain healthy at 13-14 per cent YoY while the deposits growth will be a shade lower, boosting credit deposits ratio. ICICI Securities said despite rising competition, SBI is confident of healthy growth in SME and retail segment. SBI's near-term NIM are likely to be broadly stable or 5–7 basis points sequentially. ICICI Securities said some rise in SBI opex is likely due to step-up in wage bipartite provisions.

The bank is making serious efforts to pare Agri GNPAs to single-digit, it said adding that the PSB would rely on internal accruals for capital augmentation.

"SBI endeavours to sustain the current 1.2 per cent) return on asset (RoA) with pressure on opex to be offset by improving fee. We maintain ‘BUY’ with an unchanged SoTP-based target price at Rs 730.

The brokerage has suggested a 'Buy' rating on the stock with an unchanged target of Rs 730. The scrip has fallen 2.9 per cent in 2023 so far compared with 2.63 per cent rise in Nifty Bank during the same period.

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