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State Bank of India (Q2 FY13)

India Infoline News Service | Mumbai |

State Bank of India (Q2 FY13)

CMP Rs2,156, Target Rs2,201, Upside 2.1%

  • Muted growth in advances; CASA declines by 100bps qoq

  • Trend in NIM remained weak; bank continues to guide FY13 NIM at 3.75%

  • Lackluster fee growth continues; steep sequential increase in opex

  • High slippages; credit costs lower on significant upgrades/recoveries 

  • Asset quality to act as overhang on earnings/valuation; retain MP rating 

Result table
(Rs mn)Q2 FY13Q1 FY13% qoqQ2 FY12% yoy
Total Interest Income296,068289,1672.4259,67114.0
Interest expended(186,330)(177,979)4.7(155,452)19.9
Net Interest Income109,738111,188(1.3)104,2195.3
Other income33,46634,988(4.3)34,272(2.4)
Total Income143,205146,176(2.0)138,4923.4
Operating expenses(69,668)(64,410)8.2(63,749)9.3
Reported PAT36,58137,516(2.5)28,10430.2

(Rs mn)Q2 FY13Q1 FY13chg qoqQ2 FY12chg yoy
NIM (%) Overall3.33.6(0.2)3.8(0.5)
NIM (%) - International1.41.8(0.4)1.7(0.3)
NIM (%) - Domestic3.73.9(0.2)4.1(0.4)
Yield on Adv (%) Dom10.910.
Cost of Dep (%) - Dom6.
CASA (%)45.046.1(1.2)47.6(2.7)
C/D (%)81.883.1(1.4)81.20.5
Non-interest income (%)30.531.5(1.0)32.9(2.4)
Cost to Income (%)48.644.14.646.02.6
Provisions/Avg.Adv (%)0.81.1(0.3)1.7(0.9)
RoE (%)18.318.4(0.2)16.71.5
RoA (%)1.01.0(0.1)0.90.1
CAR (%)12.613.2(0.5)11.41.2
Gross NPA (%)
Net NPA (%)
Source: Company, India Infoline Research

Muted growth in advances; CASA declines by 100bps qoq

SBIs advances grew slightly behind our estimate at 1% qoq/17% yoy. Domestic book grew by 2% qoq/15% yoy, nearly in-line with the industry. For the second consecutive quarter, domestic loan mix moved towards relatively safer but lower yielding large corporate segment (3% qoq/29% yoy). With high slippages emanating from mid corporate (growth at 2% qoq/6% yoy) and SME (growth at 8% qoq/15% yoy) segments, the bank has been cautious to grow in these areas. Retail book grew by modest 3% qoq/14% yoy with auto loans growing by 6% qoq/28% yoy and home loans growing by 3% qoq/13 yoy. In both these segments (combined constituting 67% of the retail book), SBI is the market share leader. C/D ratio declined marginally on muted loan growth. Banks deposit franchise remained strong with CASA at 45% (down 100bps qoq) and share of bulk deposits at just 1.5% (no CDs outstanding).

Trend in NIM remained weak; bank continues to guide FY13 NIM at 3.75%

SBIs NIM contracted by sharp 23bps qoq to 3.34% against our expectation of marginal decline of 5bps qoq. This was the third sequential quarter of NIM contraction; margin has fallen from 4.1% in Q3 FY12. NIM of the  domestic business (3.68%, -18bps qoq) has seen a similar trend in the past few quarters. While the domestic loan yield was sequentially stable near 10.9%, the cost of deposits seems to have increased materially in Q2 FY13. Apart from a 100bps decline in CASA, higher re-pricing of retail TDs (continues to grow at robust pace) is likely to have driven an increase in CoD. Further, with SBI having a negligible share of bulk deposits and CDs, the bank did not benefit from the steep decline in wholesale finding cost unlike peers. SBIs international NIM also declined sharply from 1.77% in Q1 FY13 to 1.42% driven by a mix of softer yields and marginally higher funding cost. 

Management has retained NIM guidance of 3.75% for FY13 to which we attribute a low probability of achievement. SBI believes that deployment of current excess liquidity (~Rs600-700bn) into more productive assets (loans v/s lower-yielding investments) would be the key lever of margin expansion in H2 FY13. In our view, sticky term deposits cost, recent reduction in interest rates for SME/retail products and impending base rate cut would preclude a significant margin improvement from Q2 FY13 level. We therefore estimate FY13 NIM at 3.6-3.65%, 20-25bps lower than FY12.

Lackluster fee growth continues; steep sequential increase in opex

Core fee income remained weak; declined yoy by 6%. Large fee components such as commission on government business, LC commission and ATM fees de-grew in the range of 10-20% yoy. Loan processing charges surprisingly grew by healthy 18% yoy; bank expects it to weaken significantly going ahead. Trading income was strong at Rs2.3bn; a large component of Rs1.4bn was on the equity portfolio. Opex growth was higher than expected at 8% qoq mainly driven by steep growth in overheads. As a result of weak revenue growth and material opex increase, C/I ratio increased by 460bps qoq to 49%.

Higher than expected slippages; credit costs lower on significant upgrades/recoveries 

Fresh slippages came in at of Rs85bn, significantly higher than our estimate of Rs64bn. However, banks Gross NPLs increased only by 4% qoq as the recoveries/upgrades stood robust at Rs45bn and also SBI wrote-off loans worth Rs20bn. About 77% of delinquencies came from Mid Corporate and SME segments. Slippages in Large Corporate and Retail segments remained benign. Delinquency ratio for the quarter stood at 3.7%, i

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