[T.S.R:17368] State Bank Of India-Will It Trade Sub-Rs 2000?

SBI-Are State Run Banks Fudging NPAs and Bad Debts?

A lot of media chatter is rotating around the purported clearing of books by new CMD after the departure of the erstwhile CMD Bhatt. The bigger, better questions to be asked are:1.Whose dirty laundry is Mr. Choudhuri cleaning-SBI's or Mr. Bhatt's?; 2: What is the role of the Chartered Accountants who certify quarterly accounts provisionally without qualifying the extent of liabilities the Banks are under-providing and then follow up by putting all liabilities into one quarter?; 3. What kind of regulation is the RBI having on Banks-especially as treatment of NPAs and write-offs are concerned. Clearly an outstanding of more than 720 days as bad debt cannot be considered prudent. The account might have turned bad two years ago and to that extent all PSU banks are fudging NPAs and Bad Debts and so both their Book Value and Earnings per share are inflated, hence a sub 1xBV should be considered as the fair value for state run banks. And hence SBI should quote somewhere between Rs 1100-1200.

We slash SBI's FY12e/FY13e net profit by 5.2%/5.3% on lower NIM assumptions and higher employee pension provisions. We retain Sell as SBI's high employee liabilities and provisions to raise NPA coverage would keep RoE lower than peers.

n       CASA share improves, yet NIM decline likely. NII declined 11% qoq, led by 90bps fall in domestic credit-to-deposit to 76.3%.CASA share improved 49bps qoq to 48.7%, and grew 22.1% yoy. Yet, given SBI's rising liability costs, particularly short-tenure deposits and a stretched credit-to-deposit, NIM has little scope for gains. We lower our NII for FY12e/FY13e by 6.1%/6.6%.

n       Higher employee expenses erode networth. Staff costs increased 20.1% qoq due to provisions for pensions (`8.8bn in 4QFY11;`24.7bn in FY11). While management estimates `25bn of pension provisions in FY12, gratuity provisions are likely to be lower (`4bn amortized over four years). SBI also adjusted `79.27bn from its reserves for previous pension provisions.

n       Asset quality suffers, low CAR necessitates infusion. Fresh slippages of `56.5bn indicate that asset quality is still suspect; 17% of restructured loans (`31.3bn) are NPAs. Additional provisions of `11bn (for 70% NPA coverage) and `5bn (for restructured standard loans) would limit earnings growth. The low tier-1 of 7.77% makes capital infusion paramount for business growth.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

--
For Anything related with Stock market be Online at
http://www.niftyviews.com/
 
Get free updates on your mobile phone. Sms "Join TSR " and send to 09223492234
 
FOR TRIAL STOCK/NIFTY/OPTION CALLS
 
 
You received this message because you are subscribed to Google Group "STOCKRESEARCHER" group.
To post to this group, send an email to STOCKRESEARCHER@googlegroups.com
 
To unsubscribe email
Stockresearcher-unsubscribe@googlegroups.com
 
for more info visit
http://groups.google.com/group/STOCKRESEARCHER?hl=en-GB
.
This is Not a Spam Mail.
Disclaimer :-
"The opinions expressed by the members on this board are based on
their individual experience and perceptions and to share information
with other members with the best of intentions to help fellow members
in investment decisions as equity investment is a risky venture."