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Our view – Management guides for stable NIMs and a healthy advances growth

Asset quality

The bank doesn’t see any structural uptrend in slippages and hence maintains its credit cost guidance: Gross NPA additions amounted to Rs 87.07bn for 1QFY25, translating to an annualized slippage ratio of 0.9% for the quarter. Gross NPA additions had amounted to Rs 39.84bn during 4QFY24. The management has stated that the sequentially higher slippages were due to seasonality in agri loans and some incremental slippages in personal loans but they don’t see any structural uptrend in slippages. Of the fresh slippages of Rs 79bn in 1Q the bank has already recovered Rs 16bn in YTD 2Q. Total loan loss provision was Rs 45.18bn, up by 37% QoQ and 70% YoY, translating to an annualised credit cost of 48bps. Of the total loan loss provision, Rs 19.76bn pertains to slippages and Rs 24.73bn pertains to ageing of assets. The bank has guided for a credit cost of 50bps for FY25.

Net interest margin –NIMs sequentially lower as the bank had no interest on income tax refund in 1Q but the management expects to maintain it at current levels: Global NIM at 3.22% was down -8bps/-11bps QoQ/YoY. There was no interest on income tax refund in 1QFY25 as against Rs 13bn in 4QFY24. The bank is currently comfortable with regards to liquidity where its LCR as of June 2024 is at 129% and it holds excess SLR of Rs 3.7trn. The bank has guided to maintain its NIM at the current level plus minus 10bps.

Balance sheet growth – Deposits growth continues to lag advances growth but loan to deposit ratio remains comfortable: Whole bank advances grew 1.2%/15.4% QoQ/YoY driven sequentially by SME, Home Loan, Gold Loan,Agri and International loans. The bank has guided for a credit growth of 15% in FY25. The total deposits were at Rs 49,017 bn, down by -0.3% QoQ but up by 8.2% YoY. The domestic loan to deposit ratio was at 69.28% and the management has guided to maintain it in the range of 70-72%

We maintain ‘Buy’ rating on SBI with a revised price target of Rs 1035: We value the bank at 1.3x FY26 P/BV for an FY25E/26E RoE profile of 16.4/16.4%. We assign a value of Rs 285 per share to the subs., on SOTP. (See our sector report dated June 2021).

Other Aspects (See “Our View” above for elaboration and insight)

* Opex control: Total cost to income ratio was at 49.4% down by -188/-95bps QoQ/YoY and the Cost to assets was at 1.7% down by -32/-19bps QoQ/YoY.

* Fee income: Core fee income to average assets was at 0.4%, down -13bps/-3bps QoQ/YoY.

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