To Ease Stress, SBI Will Sell Stake In SBI Life

SBI has taken a decision to sell 4 per cent stake in its life insurance joint
venture, SBI Life, for around Rs 1,800 crore. The stake sale in non-core
assets and subsidiaries is going to be the bank's stress resolution strategy.
Though the management had sought for a possible stake dilution in SBI
Life, the stock is expected to react positively to the deal announcement
owing to the fact that the transaction values the insurance company at 3.5
times its FY16 embedded value.
During July, SBI sold a 5 per cent holding in NSE for Rs 911 crore. It is
eyeing to raise close to Rs 3,000 crore in this financial year 2016-17 via
such divestments. On one hand it will boost SBI's capital base and also put
it in a better place to manage the cost associated with a planned merger of its associate banks namely, State
Bank of Patiala, State Bank of Mysore, State Bank of Travancore, State Bank of Bikaner and Jaipur, State
Bank of Hyderabad and Bharatiya Mahila Bank with it.
Before the merger happens, profitability of the associate banks has come under pressure with these banks
aligning their bad asset classification with that of SBI in the past two quarters. As such, the consolidated bad
assets of SBI now stands nearly Rs 1.6 lakh crore and the provisioning requirement may remain high as these
NPAs, whose recognition is spread all over the past one year (second half of FY16 for SBI and first half of
FY17 for associate banks), age. The deterioration in the NPA in the lower buckets of bad asset classification
raises provisioning requirement.
Stronger capital availability is going to aid SBI reach its target credit growth of 11-12 per cent at a time
when the already subdued industry credit growth is likely to be effected by demonetization. It is the only
public sector bank which is likely to post reasonable loan growth.
SBI is also looking at Rs 10,000 crore of anticipated increase in revaluation of its real estate portfolio, which
will put the bank in a better position to meet the costs and subsequent provisioning requirement associated
with the merger. In March, the Reserve Bank of India permitted banks to consider 55 per cent of revaluation
reserve linked to their property holdings as common equity tier-1 capital or core equity capital. In the first
half of FY17, the tier-I capital ratio of SBI moved up to 10.85 per cent from 9.91 per cent, also as the bank
raised
Rs
6,600
crore
through
additional
tier-1
bonds.
On 13th Dec, SBI share price dipped 0.19 per cent at Rs. 263.15. The stock opened at Rs. 264.90 against its
previous
closing
at
Rs.
263.65.
For further details on the stock, refer to SBI share price history.

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Article Written by
Madhurima Chowdhury