Will be a buyer in SBI: Abhijit Majumder, Prabhudas Lilladher

Abhijit Majumder, Research Analyst, Prabhudas Lilladher, in a chat with ET Now talks about the banking space.

What is your reaction on SBI and the disappointment that has come in due to the exposure to the buy world and of course higher provisioning?

On the asset quality front, yes, there has been some disappointment but on the core performance, the margins are improving sequentially and the CASA is very strong. So the core performance is very good. Asset quality has more or less been a concern and for buying 1 or 2 few banks in the PSU space, mostly everybody has the same sectoral asset quality problem. So for SBI, the core growth will also continue to be robust as long as there will be some slippages also in this year.

Long term investors are insisting that if the asset quality is not good, that is detrimental for a bank. Short term market watchers are insisting that forget about NPA provisioning, look at NIMs which are strong, net interest margins which are well above 3.5%. So which one would you vote for?

For PSU banks, in near term, asset quality is definitely a problem but we are coming out from a credit cycle. So going forward, these high slippages are unlikely. Having said that, again we have seen very high retail lending in the last couple of years. So we have not yet seen that normal slippages that are there from the retail that also will need write offs and provisioning.

So there will be pockets where there will be slippages. But the core performance because of the CASA improvement and the management’s focus on NIMs, I hope SBI in this cycle does not go and raise rates like in the last cycle. So if they are able to concentrate on margins and after this excessive asset quality pressures wane off there will be reasonably stronger ROE. We will be buyer for SBI in the longer term.

What will be the target price?

Currently we have a 3485 target.