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SBI reported near in-line PPoP, but higher staff cost, including one-off retirement provision (Rs71bn) due to adverse court judgement in 2022 case, led to 37% PAT miss at Rs91.6bn/1% RoA. Credit growth improved 15% YoY/5% QoQ, leading to higher LDR at 75%, but higher funding cost led to a 7bps QoQ decline in NIM to 3.2%. Despite higher slippages QoQ because of recognition of BGR Energy, headline NPAs continued to trend down to 2.4%. Going forward, the bank expects growth to remain range-bound, while margin should stabilize, aided by better LDR and recent rate hike. Staff cost could remain elevated in Q4 due to pending wage revision/retirement provision of Rs54bn. SBI’s CET-1 stands low at 10.4% (incl. 9M profits) and, thus, it has now indicated to raise capital soon. We trim our FY24 estimates by 6%, factoring in higher staff cost, but we have revised upward FY25/26 estimates by 3%/9% due to better margins, treasury performance, and sustained lower LLP. We retain BUY with a revised TP of Rs750, rolling forward on Dec-25E standalone Bank ABV, and have revised subsidiaries/investments value at Rs210/share (vs. Rs185).

Growth trajectory improves, but NIMs dip a bit

SBI reported better growth in Q3 at 15% YoY/5% QoQ, led by improved corporate, SME, and agri growth. Within retail, Xpress credit book continued to expand at a faster pace, but the bank has raised lending rates due to higher risk weights being directed by the RBI. Deposit growth was largely in line with systematic growth at 13% YoY/1.6% QoQ, leading to better LDR at 75%. However, higher cost of funds led to a 7bps decline in NIM to 3.2%. Going forward, the bank expects growth to remain range-bound, while margin is expected to stabilize, aided by better LDR and the recent rate hike. Staff cost could remain elevated in Q4 due to pending wage revision/retirement provision of Rs54bn and, thus, overall staff cost for FY24E would be at Rs770bn, but it should moderate at Rs660bn in FY25E as catch-up wage revision provisions are absent, thereby leading to lower cost/income ratio.

NPA ratio continues to trend down

Gross slippages inched up a bit during the quarter to Rs50.5bn/0.6% of loans mainly due to recognition of BGR Energy as per RBI’s diktat, but better growth led to a sustained decline in GNPA ratio to 2.4%. The restructured pool decelerated further to Rs188bn/0.5% of loans vs. 0.6% in Q2. The bank once again reassured that its retail book, including PL, remains better off, given the loans being mainly extended to captive customers. That said, we believe the bank should be cautious in sourcing portfolios via NBFCs amid rising asset-quality noise.

Retain BUY with a revised TP of Rs750

SBI’s CET-1 stands low at 10.4% (incl. 9M profit). Thus, the bank has now indicated to raise capital soon. We have trimmed our FY24 estimates by 6%, factoring in higher staff cost, but we have revised upwards our FY25/26 estimates by 3%/9% due to better margins, treasury performance, and sustained lower LLP. We retain BUY with a revised TP of Rs750/share, rolling forward on Dec-25E standalone Bank ABV, and have revised subsidiaries/investments value at Rs210/share (vs. Rs185). Key risks: Severe macro dislocation and a prolonged elevated-rate environment hurting margins and leading to growth/asset-quality disruption

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