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Result Highlights

* Asset quality: Annualized slippage ratio for 1QFY22 was elevated in the absolute sense at 2.47%, with management flagging significant recovery in July month itself

* Margin picture: Whole bank NIM at 2.92% was up 2 bps QoQ, with management citing declining CD ratio as a factor preventing a healthier margin expansion

* Asset growth: Advances de-grew/grew -0.6%/5.8% QoQ/YoY supported by retail and SME segments, which displayed sequential growth

* Opex control: Total opex declined/rose -13.2% QoQ/13.2% YoY as staff expenses and overheads declined -6.3% QoQ and -22.4% QoQ, respectively

* Fee income: Fees income declined/rose -36.1%/20.9% QoQ/YoY as sequentially weaker business activity dragged virtually all segments within fee income

Our view – Slippages broadly under control in comparison to other large banks, while July sees standout recovery

Recoveries worth Rs 47.9bn in July imply an effective annualised slippage ratio of 1.7%: Of the total fresh slippage worth Rs 156.66bn, SME and retail were the main contributors at Rs 64.16bn and Rs 52.68bn, of which home loan slippages were Rs 31.23bn. Home loan GNPA ratio has improved from 1.39% in June to 1.14% in July. SME recoveries in July amounted to Rs 23bn. Total restructuring amounted to Rs 202.97bn, which included a Rs 20.56bn pipeline under Restructuring 2.0. Provisions declined 9.0% QoQ to Rs 100.52bn despite a sharp rise of 269% QoQ in other provisions to Rs 29.28bn, of which Rs 28bn were provisions on non-fund exposures to restructured ICA accounts

Management stated that it is in the realm of possibility that NIM reverts back to levels seen in 1HFY21: Other factors pressuring yield on advances included declining MCLR and under-utilisation of limits by corporate borrowers. It may be noted that the Xpress Credit loan product has margin in excess of 11% and traction for the same would aid NIM expansion, ceteris paribus.

Management flagged unutilized corporate borrower limits worth Rs 3 trn and corporate funding pipeline worth Rs 1.3 trn: While corporate lending turnaround may be possible at some point, for the quarter, the segment de-grew at -3.4% QoQ. Retail and SME segments grew at 0.2% QoQ and 1.9% QoQ.

We maintain ‘Buy’ rating on SBI with a revised price target of Rs 586: We value the standalone bank at 1.1 FY23 P/BV for an FY22E/23E/24E RoE profile of 10.6/13.1/14.3%. We assign a value of Rs 192 per share to the subsidiaries, on SOTP.

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