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Decent performance in Q4

State Bank of India is the India’s largest bank. The bank operates 22,224 branches globally and has a vast network of 63,906 ATMs/CDMs. It provides a wide range of financial services, such as insurance, credit cards and asset management, through its subsidiaries.

• Advances rose by 11.6% YoY lead by robust growth in retail portfolio 15.1% YoY growth. Deposits grew by 10.6% YoY

• Net Interest Income (NII) improved 9.0% on YoY basis, even as the bank continues to build on its loan book steadily. Meanwhile, NIM remained largely flat, growing just 8bps sequentially to 3.12%. PAT up 41.3% YoY.

• SBI reported decent performance with reduction in slippages and NPAs, alongside building a strong portfolio with digital strategy back on track. We hereby reiterate our BUY rating on the stock, with a rolled forward target price of Rs 606 using the SOTP methodology.

Steady growth in NII and margins

In FY22, Net interest income grew by 9.0% YoY to Rs. 120,708cr (+1.7% QoQ) despite reduction in yield on advances to 7.58%, partly offset by decrease in cost of deposits to 3.83%. Overall Net interest margin (NIM) grew 8bps YoY to 3.12%, driven by 10bps YoY growth in domestic NIM, and a degrowth of 3bps YoY in foreign NIM. Interest income saw growth of 3.89%YoY and expenses 0.20%YoY. CASA deposits also showed a rise of 7.8% YoY, led by strong growth in savings account deposits (+10.5% YoY). PCR improved to 90.2% (vs. 87.75% in FY21). ROE at 13.92%, up by 398 bps YoY. CAR slightly improved from 13.74% to 13.83% YoY.

Improvements seen in asset quality

GNPA for the quarter dipped to 3.97% during Q4FY22 (vs. 4.50% during Q3FY22 and 4.98% during Q4FY21), while NNPA stood at 1.02% (vs. 1.34% in Q3FY22 and 1.50% in Q4FY21). Asset quality improved as slippages declined 12.4% YoY to Rs. 25,021cr in FY22. Gross advances grew by 11.0% YoY, due to the strong rise in retail advances (+15.1% YoY). 36% of retail asset accounts and 63% of savings accounts were opened through YONO in FY22. CASA deposits also mark a rise of 7.8% YoY led by strong growth on savings accounts deposits of 10.5% YoY. Foreign advances saw a strong growth of (+15.4% YoY, 2.9% QoQ), Corporate loan (+6.4% YoY, 11.2% QoQ). Retail advances rose 15.1% YoY (+5.3% QoQ), while Agriculture loan went up 6.6% YoY (+3.1% QoQ).

Key call highlights

* Retail portfolio crossed Rs 10L crore in FY22; bank has declared dividend of Rs. 7.1 per share.

* YONO has acquired 4.83cr customers and created significant value for the bank.

* Average no. of ATM transactions: ~ 12.9 Mn per day, Market share in remittances: 25.23% (#1 Remittance Bank)

* SBI’s market share improved 115 bps YoY to 16.86% during FY22

Outlook & Valuation

SBI has shown a strong overall financial performance with revival on retail loan book. Asset quality has also improved over the quarters. Management expects to have firm growth in coming quarters despite rising inflation and input costs. SBIN is moving ahead with healthy PCR and capitalization and positive outlook in Indian economy. Hence, we reiterate our BUY rating on the stock, with a revised target price of Rs. 606 using the SOTP methodology

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