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
- 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.
- 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.
- 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.
- 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 value 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.