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Earnings continue to gain traction; asset quality sublime

Momentum in loan growth remains strong

* SBIN reported another strong quarter, with PAT up 62% YoY to INR84.3b (4% beat), aided by steady NII growth and controlled provisions, as asset quality showed remarkable strength.

* GNPA/NNPA ratio improved by 40bp/18bp QoQ to 4.5%/1.3% as slippages subsided to INR25.8b (37bp annualized). Restructured book remained in check at 1.2%, while the SMA pool fell 38% QoQ to INR41.7b (16bp of loans).

* We raise our FY23E/FY24E earnings by ~4% each and expect a RoA/RoE of ~1%/~17% in FY24E, even as we build in a credit cost of 1%/0.9% in FY23E/FY24E. SBIN remains one of our preferred Buys in the sector.

Earnings on a roll; asset quality performance remains incredible

* SBIN reported a PAT of INR84.3b (up 62% YoY; 4% beat to MOSLe) in 3QFY22, led by strong NII and controlled provisions.

* NII grew 6% YoY (3% beat). Domestic NIM declined by 10bp QoQ to 3.4%. Adjusted for a tax refund, margin improved QoQ.

* Other income declined by 6% YoY to INR86.7b, resulting in a 3% growth in total revenue (in line). Core fee grew at 7% YoY, while treasury gains declined 46% to INR5.14b.

* Opex grew 1% YoY (in line), driving an improvement in C/I ratio to 52.9%. PPOP grew 7% YoY (3% higher than MOSLe). Core PPOP grew 10% YoY.

* Advances/deposits grew 9% YoY each. On a sequential basis, however, advances grew 5.5%. Advances growth was led by 7%/10% QoQ growth in international loans/SME book. Retail advances grew 5% QoQ and ~15% YoY. Corporate advances grew 3.5% QoQ (flat YoY), aided by improved utilization levels. Xpress Credit/Home loans grew 29%/11% YoY. CASA mix stood at 45.7% (-50bp QoQ).

* GNPA/NNPA ratios improved by 40bp/18bp QoQ to 4.5%/1.3% as slippages stood at INR25.8b v/s INR42.9b in 2QFY22. SMA pool declined sharply to INR41.7b v/s INR66.9b as at the end of 2QFY22. Total contingent provisions buffer stands at INR61.8b. Restructured loans stood at INR329b (1.2% of total loans), while PCR improved by 117bp QoQ to 71.2% (88.3%, including TWO).

* Subsidiaries performance: SBICARD reported a PAT of INR3.85b (83% YoY). The same for SBILIFE grew 56% YoY to INR3.64b. SBI MF reported a 25% YoY growth in PAT, while SBI General Insurance posted a loss of INR260m.

Highlights from the management commentary

* The unutilized limit within Corporate loans moderated to 43% v/s 52% earlier. Total unutilized limits stood ~INR2t. Growth trends are likely to continue to show strong traction, led by a pickup across most segments.

* The bank remains committed to deliver 15% RoE on a sustainable basis.

* The impact on MTM provisions is likely to remain manageable till yields increase to 6.95-7%.

Valuation and view

SBIN has delivered a robust 3QFY22 even as it bravely fought off the COVID-19 impact. Its asset quality performance has been nothing less than incredible, easily beating the best of its peers. The bank has been reporting continued traction in earnings every successive quarter, aided by controlled provisions. SBI has reported a strong acceleration in loan growth and guided at a continued momentum as utilization levels improve, while Retail growth is likely to remain steady. Its asset quality outlook remains strong as the restructured book remains in control at 1.2%, while the SMA pool has declined further to 16bp of loans. We estimate credit cost to moderate further to 1%/0.9% over FY23E/24E, enabling 28% earnings CAGR over FY22-24E. We estimate SBIN to deliver a FY24E RoA/RoE of ~1%/~17%. SBIN remains our conviction Buy in the sector. We revise our TP to INR725/share (1.4x FY24E ABV + INR225 from subsidiaries).

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