IGI Logo

Asset quality outlook encouraging; earnings set to gain pace

* SBIN reported strong performance, with healthy NII growth (excluding one-time interest recovery during 3QFY20) and strong recovery in retail credit growth. On the asset quality front, controlled pro forma slippages (INR20.7b) and low restructuring request (0.8% of loans) underscores an encouraging asset quality outlook. Pro forma GNPA/NNPA ratio stood at 5.44%/1.81% (v/s 5.88%/2.08% in 2QFY21).

*  We believe the earnings normalization cycle for SBIN has begun as the uncertainty ushered by COVID-19 has receded significantly. We expect a moderation in credit cost at 1.5%/1.3% for FY22E/FY23E. Maintain Buy with a revised TP of INR475/share (1.2x Sep’22E ABV+INR155/share for subsidiaries).

Strong operating performance; controlled slippages + higher coverage provides comfort

* SBIN reported a 3QFY21 PAT of INR52b (10% beat), aided by lower provisions due to controlled pro forma slippages. The bank still holds total unutilized COVID provisions of ~INR62b. On the operating performance front, NII grew at 3.7% YoY (in line). Excluding one-time interest recovery of INR40.4b during 3QFY20, growth stands at 21.4% YoY. Domestic margin stood stable QoQ at 3.34%.

* Other income (excluding treasury gains of INR9.6b) grew 11% QoQ. Opex grew 11% YoY led by INR26b of provisions towards wage-related settlement. C/I ratio stood at 54.5% v/s 50.6% in 3QFY20. Core PPOP (excluding one-time interest recovery) grew 21% YoY.

* Advances grew ~3% QoQ on the back of a 6% growth in Retail Loans, led by Home Loans (10% YoY), Xpress Credit (36% YoY), and Gold Loans, while Corporate Loan growth stood flat QoQ. Deposit growth remains strong ~14% YoY, with domestic CASA growing ~15%. Thus, the CASA mix stood ~45.2%.

* On the asset quality front, pro forma net slippages stood at INR20.7b (v/s ~INR144b in 2QFY21). Pro forma GNPA/NNPA ratio thus came at 5.44%/1.81% (v/s 5.88%/2.08% in 2QFY21). Total restructuring request received till Dec’20 stands at INR181b (0.8% of loans). Total slippages and restructuring till Dec’20 stood at INR412b (1.7% of loans), well within the guided range of INR600b. Total provisions towards pro forma slippages stood at INR52.6b (32% coverage), with provisions towards restructuring at 10%. The bank holds unutilized COVID provisions of ~INR62b. Pro forma PCR improved ~200bp QoQ to ~68%, with Corporate portfolio PCR improving to 89%.

* Collection efficiency in the Domestic loan book stands ~96.5% as on Dec’20. 4 February 2021 3QFY21 Results Update | Sector: Financials State Bank of India 5 February 2021 4

* Subsidiaries performance remains mixed: The performance of subsidiaries was mixed, with SBI AMC reporting a 39% YoY decline in PAT. SBI Cards PAT was down 52% YoY, affected by higher provisions and lower interest income. On the other hand, SBI General Insurance reported a PAT growth of 27% YoY. SBI Life posted a net premium growth of 18% YoY, led by renewal premium (24%) and single premium (16%).

Highlights from the management commentary

* SBIN does not expect a material increase in restructuring request in 4QFY21. One large Corporate account got restructured in 3QFY21.

* Total disbursements under ECLGS stood at INR230b (sanction of INR260b).

* Reversal of interest income would have an impact of 8-9bp on margin.

Valuation and view

* SBIN reported robust operating performance in a challenging environment. Loan growth is showing healthy recovery in retail portfolio, with disbursements in many business segments surpassing pre-COVID levels. Deposit growth stood strong, while margin remains broadly stable. Asset quality outlook remains encouraging, with controlled slippages, low restructuring levels, and CE at 96.5% (in line with large peers). SBIN has prudently improved PCR (~68% of pro forma coverage), while holding unutilized COVID provisions of ~INR62b. The bank is well on track to keep credit cost under control, while recoveries from resolution of large accounts can further support earnings. We maintain our FY22E/FY23E estimates and project RoA/RoE of 0.8%/14.5% by FY23E. Maintain Buy with a target price of INR475/share (1.2x Sep’22E ABV+INR155/share for subsidiaries).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer