State Bank of India Bets On Private Capex To Grow Corporate Credit: Chairman

State Bank of India (SBI) expects to give out 3.5 trillion rupees ($42.30 billion) in corporate loans over the rest of this financial year as private companies step up investments in key sectors, the chairman of the country’s largest lender said.

The Indian economy has been starved of private investment for years now but a surge in government capital spending and deleveraged corporate balance sheets has led to early signs of companies adding to their capacity.

And nearly 80% of this incremental loan demand is coming from the private sector, SBI chairman Dinesh Kumar Khara told Reuters in an interview over the weekend.

“Invariably there is a rub-off effect on small and medium enterprises also.”

About 70% of the 3.5 trillion rupees would be in term loans and help boost SBI’s corporate loan book by 12%-13% this fiscal, said Khara.

“New projects are coming into greenfield sectors like renewable energy, batteries and battery storage as well as EVs (electric vehicles) among others,” he said.

“In the core sectors, it is essentially the addition to capacity in sectors like steel, cement, road infrastructure and airports.”

SBI’s total domestic advances were 28 trillion rupees as of June 30.

Credit demand in India has been mostly for home, auto and personal loans and SBI has been very ”mindful” of the potential stress this segment could cause, given high interest rates.

Over 80% of SBI’s retail loans are to its salary-account holders, giving it greater visibility on a borrower’s cash flow.

In June, Reuters reported bankers expect the central bank to increase risk weights on unsecured personal loans and credit cards to cool demand.

This, Khara said, would make credit expensive for consumers.

“High-cost consumption credit is not a good idea.”

SBI’s stock has gained over 9% in the past 12 months, less than the 15% rise in the broader BSE Bankex index.

Analysts have often said SBI, with a market capitalisation of 5.08 trillion rupees, is undervalued since its share price does not capture the value of its subsidiaries.

”The valuation of the top four or five entities is about 2.5-3 trillion (rupees) … of both listed and unlisted companies,” Khara estimated.

But SBI does not have any immediate monetisation plans.

“Maybe in a year or two, we might decide about listing SBI General Life Insurance. Monetising the stake in SBI Mutual Fund is not a focus for us currently.”

At 14.56%, SBI is adequately capitalised, Khara said, adding SBI will ensure capital is not a constraint to supporting balance sheet growth.