SBI's Q1FY20 NII came at Rs22,939cr as against Rs21,798.4cr, which is up by 5.2% yoy. The bank has reported a net profit of Rs2,312cr for the quarter, which is below consensus estimates, as against loss of Rs4,875cr yoy. Its GNPA for Q1FY20 came at 7.53%, which is flat qoq. NNPA for the quarter came at 3.07% against 3.01% qoq, which is up by 6bps
Loan growth picked up to its highest level in the past 22 quarters. Domestic loans grew 12% yoy, driven by retail loans (+19% yoy) and corporate loans (+12% yoy) on a gross basis. SME growth slowed to 2% yoy; agriculture loan growth also marginally slowed to 7% yoy. International loans grew 16% yoy.
Margins were stable yoy, despite the re-pricing benefit on MCLR linked loans due to the one-off recovery in 1QFY19. Excluding this, NII growth would be ~15% yoy.
Core fee income growth was muted at 5% yoy, while recovery from written-off accounts declined 44% yoy. Trading gains of Rs485cr in 1QFY20 vs. a loss of Rs1,264cr in 1QFY19 distorted the growth.
Domestic credit growth at 11.89% yoy is driven by both Retail (18.68% yoy growth) as well as High Rated Corporates (11.62% yoy growth). Comfortable LCR & CD Ratio provides room for sustainable growth.
Operating Profit increased by 10.63% yoy. Excluding the one-off items in Q1FY19, Operating Profit has increased yoy by 31.89%.
Domestic Net Interest Margin increased to 3.01% in Q1FY20.
Consolidated GNPL ratio remained flat on a sequential basis at 7.4%. On a standalone basis, slippages in 1QFY20 were elevated at Rs17,000cr (3.6% of opening loans) as against Rs14,340cr in 1QFY19. Corporate slippages accounted for Rs5,570cr (including the international segment). Slippages increased sequentially across loans segments, with a substantial spike in agriculture slippages to Rs424cr.
PCR improved significantly by 1009bps from 69.25% as on June 2018 to 79.34% as on June 2019.
Total provisions declined sharply (-52% yoy), despite provisions of Rs2,300cr made in 1QFY20 on: (i) a stressed HFC account (Rs1,200cr) and (ii) a renewable energy account (Rs1,100cr). Total provisions were aided by write-back in provisions for both, investment depreciation and standard assets. Provisions for loan losses as a percentage of loans declined to 232bps in 1QFY20 (down 50bps yoy).
Credit Cost at 2.03% in Q1FY20 (down 52bps yoy).
Capital Adequacy Ratio has improved from 12.83% as at June 18 to 12.89% as at June 19.
Cost to Income Ratio (excluding Pension Provisions) has improved from 52.46% in Q1FY19 to 47.26% in Q1FY20.
Corporate loans: The bank has a good pipeline in the oil & gas, roads and renewable-energy sectors. Apart from these segments, the pipeline is relatively weak.
Retail loans: SBI already has a high market share among banks in the home loan and auto loan segments at ~35% and 36% respectively. Management does not expect a material increase in these shares going forward. In personal loans, management expects a growth of 18-20% yoy in FY20.
Mudra loans: The book size is relatively low at Rs26,000cr (~1.2% of loans). However the GNPL ratio at ~12.7% is higher than the bank average (Rs3,300cr of GNPLs). SA rates: SBI had linked SA rates for balances above Rs0.1mn to repo rates effective May 2019. Management stated that it could decide to alter this, based on flows, especially if further repo rate cuts lower the effective SA rate.
Margins: Management expects margins to improve going forward, driven by lower deposit rates. Management guided for a domestic NIM of 3.15% in FY20 (3.01% in 1QFY20). Management expects international NIMs to be 1.20% for FY20 (1.18% in 1QFY20).
MTM provision gains: SBI had MTM gains of Rs1,480cr in the SLR book. It also had MTM gains of Rs1,200cr in the corporate bond book, but this could not be recognised as no losses have been carried forward on this account.
Possible one-time gains: Net profit for the year could receive a boost from: (i) recovery of ~Rs16,000cr, which depends on resolutions of three NCLT 1 accounts – Essar Steel, Bhushan Power and Steel and Alok Industries, and (ii) stake sale in SBI Cards/SBI General Insurance through their listing.
Provisions: SBI made a provision of Rs1,200cr on DHFL exposure in 1QFY20, which includes 25% provisioning on bonds (included in MTM provisions) and 7.5% provisioning on loans (included in standard asset provisions). It also made Rs1,100cr of standard asset provisions on a renewable energy account in the quarter.
Key large exposures: DHFL: Rs11,000cr (as of 3QFY19) - Of this, Rs1,200cr has been provided in 1QFY20. Management expects a resolution in this account by December 06, 2019. Essar Steel: Rs10,550cr (as of 3QFY19). IL&FS: Rs3,430cr (as of 1QFY20) – Of this, Rs1,590cr is classified as NPL, while Rs1,840cr is standard. The bank holds provisions of Rs950cr on the NPL portion (~60% PCR). Jet Airways: Rs160cr (as of 1QFY20) – Of this, Rs800cr has been provided (50% PCR).
Slippages: Agriculture slippages: Of the total slippages of Rs4,240cr, ~Rs2,000cr was from a particular state. Corporate slippages: Of the total slippages of Rs5,570cr, there was one account of Rs2,000cr which was a performing account but had to be classified as a GNPL on technical grounds (because one of the lenders failed to complete the documentation in time). SME slippages: SME slippages increased 123% yoy from Rs17,750cr in 1QFY19 to Rs39,640cr in 1QFY20.
State Bank of India is currently trading at Rs. 316.40, down by 0.8 points or 0.25% from its previous closing of Rs. 317.20 on the BSE.
The scrip opened at Rs. 315.55 and has touched a high and low of Rs. 322.20 and Rs. 312 respectively. So far 3,78,39,811 (NSE+BSE) shares were traded on the counter. The stock is currently trading above its 50 DMA.
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