According to S&P, SBI’s cost-to-income ratio will fall to 54-55% in two years
Photo Credit: Ruby Sharma
After a sharp rise in cost to income (C/I) ratio to 60 per cent in FY24, State Bank of India’s (SBI) C/I ratio is expected to normalise to 54-55 per cent over the next two years. The country’s largest lender saw a one-time spike in its C/I ratio in the financial year ended March 2024 (FY24) on account of employee costs, S&P Global Ratings said.
The C/I ratio was 56.2 per cent in FY23. The bank could gradually improve its operational efficiency over the next three years as it exploits its digital platforms, the rating agency said in a statement filed by SBI with the stock exchange. S&P Global has affirmed State Bank of India’s issuer credit rating at ‘BBB-/Positive’.
The bank, in its interaction with analysts, has maintained that it would reduce the cost-income ratio by focusing on the revenue side. It has made a total provision of Rs 15,877.09 crore for wage arrears that were due for revision, effective from November 2022, according to SBI’s annual report for FY24.
On SBI’s capital base, S&P said SBI’s capitalisation remains weaker than its peers. The bank’s risk-adjusted capital ratio (RAC) could remain subdued at 5.5-6.0 per cent over the next two years, compared to 5.9 per cent as on March 31, 2024. Its capitalisation remains lower than that of large private banks in India.
“While SBI has raised substantial additional Tier-1 and subordinated Tier-2 debt, we are not counting these funds as equity. This is because we believe that the GOI will intervene to prevent these instruments from absorbing losses,” the agency said. It is applying this treatment to all public sector banks in India.
On SBI’s asset quality, S&P Global said asset quality is likely to remain stable over the next 12-18 months. “We forecast the bank’s weak loans — non-performing assets plus restructured loans — to remain at 2.5-3.0 percent of total loans over the next 12-18 months, compared with 3.0 percent as of March 31, 2024.”
Credit costs are expected to remain below 1 percent, as asset quality risks may remain contained. Credit costs have been exceptionally low over the past two years, helped by limited new non-performing loans and good recoveries on bad loans.
“However, we forecast that credit costs will normalise given rising NPLs in unsecured retail loans. Moreover, the strong recovery trends of the past two years may not be sustainable,” it added.
First publication: Sep 13, 2024 | 6:51 PM IST