SBI foresees muted growth

Mon, 11 Jan 11:30 am

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Indian markets continued to trade on a firm note during the previous two hours of trade. Currently, buying activity is being witnessed across sectors led by stocks from the realty, IT, telecom and metal. However, the oil & gas sector is finding it difficult to garner investors’ interest.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 95 points and 27 points respectively. Stocks from the midcap and small cap spaces are currently trading in the green, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 1.3% and 2% respectively. The rupee is trading at 45.37 to the US dollar.

As per a leading business daily, India’s largest public sector bank, SBI has slashed down its credit growth estimated for FY10 on account of slow pickup in demand for loans. The bank initially expected a credit growth of around 25% for FY10. However, due to weakness in credit demand it witnessed a loan growth of just 16% in the first 3 quarters (i.e. April to December) of FY10. It now expects an overall credit growth of 18% for the entire fiscal. Another area of concern for the bank is the new NPA (non performing assets) norm imposed by the RBI according to which the banks need to have a loan-loss coverage ratio of around 70%. SBI currently has a loan to loss ratio of about 50%. Given the slow growth in loan disbursals, achieving the stipulated ratio will be a daunting task for SBI as its balance sheet size is huge.

Though the bank has no plans of equity issue, it is contemplating about introducing 10-year retail bonds in order to tap the retail investors. However, SBI has asked for approvals from the regulatory authorities for the same and will first test the market acceptance before coming with any big issue. SBI has had slow yet a market leading loan growth for the current fiscal. The Indian banking industry witnessed an average credit growth of 11. 5% so far in FY10. Despite the bank’s reach and credibility, we believe that NPAs and asset liability mismatch will affect SBI’s performance in the medium term.

According to a leading business daily, GAIL is planning to ramp-up its gas transmission operations in the next couple of years. The company plans to generate around 65% of its EBIT (earnings before interest and tax) from gas transmission from the current levels of 53%. It may be noted that its transmission business with large asset base, secular demand growth, long term earning visibility and direct customer interface has all the ingredients of a complete utilities company. The gas availability in India is expected to grow by 23% to 312 m standard cubic meter per day (mscmd) by FY14. We believe that this gas surge brings a big opportunity for companies like GAIL. GAIL is making significant investment of as much as Rs 30-35 bn in its pipeline networks and plans to double its overall capacity by 2013. We believe such forward looking strategic investment will go a long way for the company.