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State Bank of India (SBI) reported another strong quarterly performance as the largest lender showed further sequential improvement in assets quality and rise in profitability. Net profit rose to Rs6,451 cr (24.1% QoQ) supported by lower provisioning and other income which also offset the impact of higher OPEX. NIM (domestic) reduced 23bps QoQ to 3.11% impacted by ~Rs3,000 cr of interest reversals.

The bank performance remained strong on assets quality front as slippages and restructuring remained within guidance while PCR of 71% and standard provisioning of 1% of loans (Rs25,376 cr) provides comfort. GNPA improved to 4.98% in Q4FY21 as compared to 5.4% in Q3 due to lower slippages of Rs5,473 cr (adjusting with proforma slippages of Rs16,461 cr).

SBI received restructuring application worth of Rs17,853 cr (0.7% of loans) which seems low and even better than private sector banks. Furthermore, slippages and restructuring at Rs46,416 cr for FY21 remained within the provided guidance of Rs60,000 cr, indicates bank strong control over assets quality which is commendable given the large balance sheet size.

Moreover, stress appears under control given high share at 63% of AA and above rated a/c in corporate book and 58% constitution of secured home portfolio in retail book (retail book GNPA at 0.8%). On business growth front, gross advances book grew by 5.7% YoY driven by strong growth in retail credit (16.5% YoY).

Amid Covid second wave business uncertainty, PCR at 71% and standard provision at 1% of loans to immune the balance sheet and boost profitability. While slippages from SME/agri books require close monitoring. Credit cost is expected to remain <2% in next two fiscals while RoE to improve to double digits over FY22-23E.

We maintain ‘Buy’ rating on stock with revised target price of Rs500. Standalone business is valued at Rs345 derived at P/ABV 1.1xFY23E, while subsidiaries are valued at Rs155.

Low provisioning and higher other income boost profitability

NII contracted by -6.1% QoQ impacted by impacted by Rs2,127 cr bn of interest reversal on NPAs and Rs830 cr on account of interest-on-interest reversal. Interest reversal impact remained 30 bps on NIM (domestic) which declined to 3.11% in Q4 from 3.33% in Q3. Fee income grew by 7.4% YoY while trading income remained weak. Other income got a boost from Rs4,000 bn recovery from one a/c Bhushan steel. OPEX grew by 15.8% YoY on account of wage revision. Provisioning reduced by -18% YoY thereby proving a strong boost to profitability.

Advances growth driven by retail credit

Gross domestic advances grew by 5.7% YoY led by 16.5% YoY growth in retail advances. Agri advances grew by 3.9% YoY and SME by 4.2% YoY while corporate advances declined by -3% YoY. Within retail segment, home loans grew by 10.5% YoY, auto by 5% YoY and other retail loans including unsecured grew by 32.7% YoY. As per mgmt, retail disbursements witnessed a strong trend and growth trajectory is likely to remain strong, while corporate credit is expected to pick up from H2FY22 onwards. Deposits grew by 13.6% YoY and CASA share stood at 46.1% by Q4FY21.

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