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Walking the talk…

SBI posted strong performance on the asset quality front wherein slippages and restructuring were within guidance while sufficient provisioning buffer also provides comfort. Business growth was in-line with estimates while profitability was boosted by a sharp jump in other income.

On a reported basis GNPA saw a jump from 4.77% to 4.98% as standstill asset classification norms are now removed. However, when compared with proforma GNPA number of 5.44% in the previous quarter, the asset quality showed a meaningful improvement. Slippages during the quarter were at | 21934 crore of which | 16461 crore were proforma slippages while recoveries and upgrades were at |4329 crore. Pool of SMA1 & 2 accounts came down from | 17946 crore to | 11519 crore QoQ. For FY21, total slippage and restructuring came in at | 46416 crore, well within earlier guidance of | 60000 crore. For SBI PCR was at 71% while it holds non-NPA provisions worth | 25376 crore (~1.0% of loans), which includes Covid contingency provision of | 6346 crore. Total restructuring request received for FY21 is | 17852 crore (~0.7% of loans).

Net interest income (NII) grew 18.9% YoY and fell 6.1% QoQ to | 27067 crore due to sequential decline in NIMs, down 5 bps QoQ to 3.0%. NIM contraction can be partly attributed to reversal of interest worth | 2127 crore due to NPA in Q4FY21 apart from | 800 crore due to relief on interest on interest. Noninterest income jumped 75.5% QoQ to | 16225 crore, driven by recoveries worth| 6312 crore vs. | 2142 crore QoQ. Fee income also showed healthy sequential growth of 58.1%. Other expenses were up 34% QoQ partly due to DICGC insurance expense. Overall PPP grew 6.7% YoY, 13.7% QoQ to | 19700 crore. Provisions were up 6.9% QoQ to | 11051 crore. As a result of higher other income, PAT was at | 6451 crore, higher than our estimates.

Loan growth came in at 5.3% YoY to | 24.5 lakh crore, in line with our estimates. Retail advances grew 16.4% YoY. SME advances increased 4.2% YoY and corporate book (including CP, CB) grew 2.6% YoY. In retail, home loan, which forms ~20% of overall advances, have grown 10.5% YoY while its express credit (personal loans) was up 36.4% YoY. Deposits grew 13.6% YoY to | 36.8 lakh crore wherein domestic CASA was up 16.7% YoY. As a result, CASA ratio was up from 45.1% to 46.1% QoQ.

Valuation & Outlook

SBI has surprised positively on the asset quality front while it also has walked the talk and contained stress within guidance. We believe the overall outlook has improved with many positive levers like decline in credit cost, improvement in credit - deposit ratio, better yields due to less reversals and, thus, better margins, in place, which could lift the bank’s operational performance. We expect RoA of 0.6% and RoE of 10% by FY22E with scope to improve gradually. We maintain our BUY rating with a revised target price of | 500 (earlier | 410), valuing the stock at ~1.2x FY23E ABV for standalone bank and subsidiaries valued at | 150 post holding company discount.

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