SBI Drops Most In Over 5 Months As Bank Bailout Package Seen Inadequate

Shares of State Bank of India Ltd. fell the most in over five months after some brokerages said the Rs 8,800 crore fresh capital the country’s largest lender will receive from the government is far less than anticipated.

“About 60 percent of the capital allocation is biased towards weaker banks requiring corrective action, thus, limiting access to growth capital for larger banks,” JPMorgan said in a note.

Public sector banks will get Rs 88,139 crore in form of recapitalisation from the government this financial year, according to a presentation made by the finance ministry yesterday. This is the first tranche of the Rs 2.11 lakh crore recapitalisation plan that the government had first announced in October 2017.

Here’s what brokerage had to say about the recapitalisation plans:

Also Read: SBI Will Use The Entire Rs 8,800 Crore Recap To Fund Growth

JPMorgan

• About 60 percent of the capital allocation is biased towards weaker banks requiring corrective action, thus, limiting access to growth capital for larger banks.
• Loan growth recovery is likely to be delayed, probably after March 2019, as the larger banks would lack the growth capital.
• For the banks within coverage, see a capital shortfall of 59-72 percent.
• Focus on small and medium enterprises would raise long-term risks.
• Recommend investors switch out of public sector banks into relatively well-capitalised private banks that are better positioned for growth.
• Axis Bank Ltd. is our top value pick.

Macquarie

• The recapitalisation plan of about Rs 2 lakh crore is short by Rs 50,000 crore to meet provisioning requirement and move to IFRS by March 2019.
• The first tranche is skewed towards bailouts than growth.
• Hope that the next tranche is concentrated to a few large, disciplined banks with improving processes and governance.
• Bank of India receives disproportionately more, State Bank of India receives far less than estimated.
• While BoI gets much more capital (near term positive), this increases dilution and thus delays return on equity mean reversion that much more.
• Maintain Axis Bank and ICICI Bank Ltd. as the best plays for the recovery theme.
• Among public sector banks, we like only SBI and would continue to avoid all other public sector banks.

Credit Suisse

• Infusion will translate into a 5-100 percent equity dilution and improve common equity tier-1 by 50-500 basis points.
• Estimate that 55 percent of this recapitalisation amount will be used up for provisioning and meeting Basel-III capital requirements and about $6 billion would be available as “growth capital.”
• Continue to prefer SBI, Bank of Baroda and Punjab National Bank among public sector lenders.

Motilal Oswal

• CET1 ratio for all PSU banks would reach above 8.5 percent.
• Net stressed assets reducing to 102 percent of net worth from 117 percent earlier.
• SBI and BoB remain our top picks within the public sector banking space.