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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 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Total Interest Income 296,068 289,167 2.4 259,671 14.0
Interest expended (186,330) (177,979) 4.7 (155,452) 19.9
Net Interest Income 109,738 111,188 (1.3) 104,219 5.3
Other income 33,466 34,988 (4.3) 34,272 (2.4)
Total Income 143,205 146,176 (2.0) 138,492 3.4
Operating expenses (69,668) (64,410) 8.2 (63,749) 9.3
Provisions (18,256) (24,563) (25.7) (33,855) (46.1)
PBT 55,280 57,203 (3.4) 40,888 35.2
Tax (18,699) (19,688) (5.0) (12,784) 46.3
Reported PAT 36,581 37,516 (2.5) 28,104 30.2
EPS 218.1 223.6 (2.5) 177.0 23.2

(Rs mn) Q2 FY13 Q1 FY13 chg qoq Q2 FY12 chg yoy
NIM (%) – Overall 3.3 3.6 (0.2) 3.8 (0.5)
NIM (%) - International 1.4 1.8 (0.4) 1.7 (0.3)
NIM (%) - Domestic 3.7 3.9 (0.2) 4.1 (0.4)
Yield on Adv (%) – Dom 10.9 10.9 0.0 10.8 0.1
Cost of Dep (%) - Dom 6.3 6.2 0.1 5.8 0.5
CASA (%) 45.0 46.1 (1.2) 47.6 (2.7)
C/D (%) 81.8 83.1 (1.4) 81.2 0.5
Non-interest income (%) 30.5 31.5 (1.0) 32.9 (2.4)
Cost to Income (%) 48.6 44.1 4.6 46.0 2.6
Provisions/Avg.Adv (%) 0.8 1.1 (0.3) 1.7 (0.9)
RoE (%) 18.3 18.4 (0.2) 16.7 1.5
RoA (%) 1.0 1.0 (0.1) 0.9 0.1
CAR (%) 12.6 13.2 (0.5) 11.4 1.2
Gross NPA (%) 5.2 5.0 0.2 4.2 1.0
Net NPA (%) 2.4 2.2 0.2 2.0 0.4
Source: Company, India Infoline Research

Muted growth in advances; CASA declines by 100bps qoq

SBI’s 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. Bank’s 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%

SBI’s 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. SBI’s 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, bank’s 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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