SBI loan growth: Street sceptical of FY16 target

With the state of the economy and of recovery in demand, most analysts doubt if the 14% expectation can be met

State Bank of India (SBI) is aiming at 14 per cent growth in its overall loan book (including international) this financial year. This seems ambitious, say analysts.

For one, the 6.6 per cent loan growth in the March to June period was a multi-quarter low, impacted by weakening corporate demand. Second, the management indicated that subdued commodity prices and a slow uptick in the macro economy were pulling down loan growth. While it remains confident on achieving its target, analysts aren’t convinced.

Of the 15 brokerages which have put out a note after the results, only four are assuming 14 per cent loan growth in FY16. Ten expect between nine and 12 per cent. On an average, they expect 11.6 per cent loan growth in FY16.

Suresh Ganapathy, finance analyst at Macquarie Capital, says: “It will be very difficult for SBI to achieve 14 per cent loan growth. Low commodity prices and devaluation of the Chinese yuan indicate no significant pick-up in growth. We believe pick-up in credit demand in the second half will be much lower than SBI’s expectation.”

While retail loans (a fifth of the loan book) will be a key driver, some uptick is likely from refinancing of large corporate loans. Santosh Singh, analyst at Societe Generale, says: “Though the management will be more aware about its refinancing book, achieving 14 per cent purely from new loans looks difficult in the current environment.”

While loans to small and medium enterprises could see some improvement, these are too small to move the needle for a loan book as big as that of SBI.

Improvement in infrastructure credit is a key catalyst for any improvement in SBI's loan growth, believe analysts. This segment is 16.2 per cent of SBI’s domestic loan book. Home loans are a close number two at 15.4 per cent.

Suruchi Jain, banking analyst at Morningstar Investment Adviser, says: “I think SBI might revise its loan growth guidance (expectation) downwards in the September quarter. Things have not improved meaningfully and the guidance implies more than 14 per cent loan growth in each of the (remaining) three quarters.”

  Analysts have mixed views on whether the bank will chase loan growth by adding more stress to its books. “SBI can achieve the target if it chooses to grow aggressively in riskier segments,” believes a fund manager with a leading domestic asset management company. Others believe it is unlikely to put its credit quality at risk. Though SBI put up a resilient show on asset quality in the June quarter, it remains a key monitorable.

While the management is confident of keeping asset quality in check, slippages from the restructured book need to be watched closely, say analysts. Any incremental stress from new loans will not be visible immediately, they add.