State Bank of India plans to boost growth at its subsidiaries through cross-selling of products as it looks to take some of them public in the next two years.
Of SBI’s 420 million customers, only 20-25 million have been cross-sold SBI sub-products, India’s largest lender said on its Subsidiary Day as it highlighted growing market share of its five large subsidiaries and two regional rural banks.
That leaves plenty of room to cross-sell insurance, mutual funds and cards using SBI’s branch network, the bank said. The lender is targeting initial public offerings of three subsidiaries – SBI Asset Management Company, SBI General insurance and SBI Cards – and the two regional rural banks by the financial year 2019-20.
SBI Subsidiaries: Key Highlights
Life Insurance
- Push towards financialisation of savings and significant headroom for increasing penetration within SBI branches will ensure above-industry new business growth.
- Focus will be on improving persistency and increasing protection mix to 10 percent over the next three to four years.
General Insurance
- SBI General has about 5 percent market share among private players.
- It has a lower mix of motor insurance, a segment which has historically had high loss ratios – a ratio of total losses incurred in claims to the total premiums earned.
- Government push towards health insurance, under-penetration, new motor insurance regulations and better pricing discipline in specific segments is expected to improve loss ratios.
- SBI General aims to be a top 5 private general insurance player in the next three years.
SBI Cards
- Better customer selection has enabled the credit card subsidiary to grow its card spend market share at a higher pace than peers.
- Increased sourcing via SBI and focus on relatively higher-margin segments to be key growth drivers.
SBI Asset Management
- To focus on B-15 (Beyond Top-15) cities for faster growth. As of December 2017, it had a market share of 14.2 percent in B-15 assets under management for the industry.
- Profitability is lower than other large peers, likely because of its relatively lower share of equity in overall AUMs and higher share of low-yielding passive funds under management.
SBI Capital Markets
- Remains focused on strengthening the advisory business and diversifying sources of income.
- Management has guided for a better long-term outlook on capex cycle revival and increased focus on capital markets and investment-banking activities.
Regional Rural Banks
- SBI has increased management focus on two of its regional rural banks and is actively pursuing consolidation of some of the RRBs to improve operating efficiency.
- SBI is in talks with the government for listing of four RRBs.
Valuation Contribution
- State Bank of India’s subsidiaries contribute nearly a fifth to the parent’s price target.
- In case of Nomura, subsidiaries contribute Rs 86 per share to the price target price of Rs 370. That’s a contribution of 23 percent.
- For Jefferies, subsidiaries account for 21 percent of the parent’s price target.
- Edelweiss has marginally raised its of subsidiaries to Rs 82 per share from Rs 74 per share earlier. Subsidiaries account for 20 percent of the brokerage’s price target for SBI.