SBI shares: Can Nifty Bank’s worst-performing stock of 2023 recover?

State Bank of India Ltd (SBI), the worst-performing constituent of Nifty Bank in 2023 so far, is attractively valued, said analysts who retained their 'Buy' recommendations on the stock despite the recent increase in risks weights on unsecured retail loans by the Reserve Bank of India. An increase in risk weights can hurt SBI's common equity tier 1 (CET 1) by 55–60 basis points, coming down to 10.4–10.5 per cent, said Antique Stock Broking said on Monday. 

Despite this, Antique Stock Broking said the dilution concern is overdone as strong internal accrual is adding to CET 1 and should be sufficient for 12–13 per cent loan growth estimates. The brokerage said subsidiaries’ stake sale over a period could add 0.8–1.3 per cent to CET 1. It hoped that the government may consider infusing capital over the next two years.

SBI shares climbed 0.52 per cent to hit a high of Rs 566.10 on BSE.

"On financials, unsecured personal loans growth has already moderated to 18 per cent YoY and further moderation would not have a high impact on overall loan growth. As the incremental contribution to growth has come down impact on NIM may also be low. The track record of asset quality has been strong and management is confident about the portfolio quality; even if we consider a 200 bps credit cost rise in unsecured loans, the impact on overall credit cost would be 16 bps," Antique Stock Broking said.

The brokerage, which has an unchanged target of Rs 725 on the SBI stock, said the current event is unlikely to change the structural strength of the bank and the return on asset (RoA) expectation of 0.9–1 per cent.

The PSU bank stock has fallen 8.16 per cent this calendar against a 0.6 per cent rise in the banking benchmark during the same period.

B&K Securities noted that SBI raised equity capital in FY13, FY16 and FY18 and that the bank's tier 1' capitals in the years prior to FY13, FY16 and FY18 were 9.5 per cent, 9.6 per cent and 10.4 per cent, respectively.

Including H1FY24 numbers, it said SBI's Tier I capital stood at 12.8 per cent and the RBI measures could erode the CET I by 85 basis points.

"It appears that there is no imminent requirement to raise core capital now," it said.  Nomura India and Jefferies have retained their 'Buy' ratings on SBI. Out of a total 39 analyst recommendations on the stock, 31 are a 'strong Buy', four 'Buy', two 'Hold' and two 'Sell' and Strong Sell' calls. As per publicly available data with Trendlyne, the stock has a target of Rs 706, suggesting 25 per cent potential upside.    

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