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Returning to normalised earnings path…

SBI’s asset quality picture within guidance is a positive surprise. Q3 slippages around | 2073 crore and new restructuring in Q3 were at | 18125 crore. This brings stressed assets status as on December 2020 at | 41000 crore within the guided | 60000 crore i.e. 2.5% of loans as total stress including slippages. Total provisioning for the quarter was at | 103420 crore, which includes Covid-19 provisioning of | 5885 crore. Overall Covid provision now is at | 12976 crore.

Though reported GNPA saw a decline of 51 bps QoQ to 4.77 % from 5.28%, while NNPA ratio declined 36 bps QoQ to 1.23%, actual proforma GNPA ratio would have been 5.44% and NNPA ratio would be 1.81% if Supreme Court standstill was unavailable. This is down from 5.88% and 2.08% proforma NPA, respectively in the previous quarter. Overall PCR ratio rose QoQ to 90.21% from 88.19%. The bank has made Covid provisions worth | 5885 crore in the quarter and the cumulative figure is at | 12976 crore.

Net interest income grew 3.75% YoY and 2.27% QoQ to | 28820 crore. Domestic NIM was stable at to 3.34% QoQ. Lower interest reversal arising from lower slippages would have enabled elevated margins to sustain. Loan growth came in at 6.7% YoY to | 24.56 lakh crore. However, including CP, corporate bonds, etc, credit growth was 8.2% YoY. Retail (personal) advances grew 15.4% YoY, SME advances increased by 5.6% YoY and corporate book grew 2.3%. In retail, home loan, which constitutes 23% of bank’s domestic advances, has grown 10% YoY.

Deposits grew 13.6% YoY to | 35.35 lakh crore; boosted by savings deposit. Saving deposits grew 16% YoY. CASA ratio dipped 24 bps QoQ to 45.15%. Non-interest income (excluding one off) improved YoY and QoQ to | 9246 crore. Recovery boosted other income QoQ to | 2142 crore and fee income improved further QoQ to | 5349 crore. Employee cost during the quarter was slightly higher during the quarter owing to wage related provisions. Overall PPP grew 5% QoQ to | 17333 crore and PAT came in at | 5196 crore, up 13.6% QoQ and declining 6.9% YoY.45.13% to 45.39% YoY.

Valuation & Outlook

Overall stress being contained at 2.5% of loans as indicated earlier provides comfort reassuring investor confidence in SBI. Covid provisions at | 12976 crore may be raised further in Q4FY21. With retail customers comprising government employees/salaried, the portfolio in this segment appears more resilient in these challenging times. Budget’s growth push provides visibility on capex and thereby credit growth pickup. NII growth and moderating provisions augur well for the bank’s earnings. We roll over to FY23E and upgrade our PAT estimates marginally for FY21E to | 178 billion. We expect RoA of 0.6% and RoE at 9.5% by FY22E and scope to improve gradually. We, therefore, revise our rating from HOLD to BUY with a revised target price of | 410 (earlier |290), valuing the stock at ~1x FY23E ABV for standalone bank and subsidiaries valued at | 132 post holding company discount.

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