“State Bank of India (SBI), we believe that by end of June 2011, SBI’s tier I capital, including Q1FY12 profit, was over 7.8%, as against the reported figure of 7.6% excluding quarterly net profit......
Dolat Capital is bullish on State Bank of India (SBI) and has recommended buy rating on the stock with a target of Rs 2393 in its October 4, 2011 research report.
“State Bank of India (SBI), we believe that by end of June 2011, SBI’s tier I capital, including Q1FY12 profit, was over 7.8%, as against the reported figure of 7.6% excluding quarterly net profit. This comes as a bit of surprise to us, given that SBI’s coverage ratio actually improved in Q1FY2012- it was 67.3% as on June 2011 vs 65% as of Mar 2011 and 61% as of June 2010. Though, gross NPAs have risen, the bank has made adequate provisions and has brought down net NPAs in percentage terms to 1.61% from 1.63% at the end of March 2011 and 1.7% in the previous year corresponding quarter. Unless of course, Moody’s expects significant deterioration in the credit book going forward, given the slowdown. This again is a bit of surprise to us, given Government’s in principle stance to let the capital raising go through.”
“However, it seems the lack of clarity on timing and whether it shall be in cash or bonds subscription has led Moody’s to view this issue as a risk. Notably, the last rights issue by SBI attracted government contribution in the form of a bond issue, which SBI had to liquidate at a discount. We agree with this. Post the rights issue, the capital adequacy would have risen to 9.4%, and would have necessitated another capital raising as early as FY2014 even with 19% growth for FY12. However in case of slower growth, as a result of slackening overseas demand, may then be a blessing in disguise!”
“Raising hybrid capital in domestic and foreign markets will take place at higher rates, resulting in slightly higher cost of funds, we estimate 30 bps impact on overseas borrowing, and these are currently 5% of SBI’s deposits. As of Mar 2011, 14.3% of SBI’s credit book and 3.4% of its investment book were from overseas markets. Cumulatively, 11.7% of the bank’s assets were from overseas. Almost 5% of SBI’s total deposits were from overseas, which will get re-priced at a higher level. Business in most overseas markets depend on wholesale borrowings. At the end of March 2011, up to 60% of the total borrowings (7.5% of the total deposits) were from overseas. In all, around 12.5% of SBI’s (standalone entity) total businesses came from overseas. The impact on its incremental cost of funds and margin will be minimal.”
“We remain positive on SBI, with a price target of Rs 2,393. Based on the above action, we now apprehend that Bank of India’s rating could be at risk given its lower Tier 1 capital and asset quality concerns. We do not other PSU banks at risk on similar count though,” says Dolat Capital research report. ....
BackDolat Capital is bullish on State Bank of India (SBI) and has recommended buy rating on the stock with a target of Rs 2393 in its October 4, 2011 research report.
“State Bank of India (SBI), we believe that by end of June 2011, SBI’s tier I capital, including Q1FY12 profit, was over 7.8%, as against the reported figure of 7.6% excluding quarterly net profit. This comes as a bit of surprise to us, given that SBI’s coverage ratio actually improved in Q1FY2012- it was 67.3% as on June 2011 vs 65% as of Mar 2011 and 61% as of June 2010. Though, gross NPAs have risen, the bank has made adequate provisions and has brought down net NPAs in percentage terms to 1.61% from 1.63% at the end of March 2011 and 1.7% in the previous year corresponding quarter. Unless of course, Moody’s expects significant deterioration in the credit book going forward, given the slowdown. This again is a bit of surprise to us, given Government’s in principle stance to let the capital raising go through.”
“However, it seems the lack of clarity on timing and whether it shall be in cash or bonds subscription has led Moody’s to view this issue as a risk. Notably, the last rights issue by SBI attracted government contribution in the form of a bond issue, which SBI had to liquidate at a discount. We agree with this. Post the rights issue, the capital adequacy would have risen to 9.4%, and would have necessitated another capital raising as early as FY2014 even with 19% growth for FY12. However in case of slower growth, as a result of slackening overseas demand, may then be a blessing in disguise!”
“Raising hybrid capital in domestic and foreign markets will take place at higher rates, resulting in slightly higher cost of funds, we estimate 30 bps impact on overseas borrowing, and these are currently 5% of SBI’s deposits. As of Mar 2011, 14.3% of SBI’s credit book and 3.4% of its investment book were from overseas markets. Cumulatively, 11.7% of the bank’s assets were from overseas. Almost 5% of SBI’s total deposits were from overseas, which will get re-priced at a higher level. Business in most overseas markets depend on wholesale borrowings. At the end of March 2011, up to 60% of the total borrowings (7.5% of the total deposits) were from overseas. In all, around 12.5% of SBI’s (standalone entity) total businesses came from overseas. The impact on its incremental cost of funds and margin will be minimal.”
“We remain positive on SBI, with a price target of Rs 2,393. Based on the above action, we now apprehend that Bank of India’s rating could be at risk given its lower Tier 1 capital and asset quality concerns. We do not other PSU banks at risk on similar count though,” says Dolat Capital research report. ....