For Q3FY22, SBI’s profit of Rs 84 bn, up 62% y-o-y, was below estimate due to higher provisions & lower fees. Key positive was low net-slippages (gross NPLs down 3% q-o-q) & better loan growth (domestic loans up 6% y-o-y). This should be key to lifting its low NII growth of 6% y-o-y. SBI is disclosing NPL flow on a cumulative basis (vs quarterly for peers), which makes comparison difficult. Its high CASA base & corp. book should aid top-line growth. Buy stays.
Well-managed asset quality: During Q3, SBI’s gross NPLs fell by Rs 39 bn q-o-q after adjusting for write-offs of a similar amount (Rs 42 bn). This implies that net slippages (gross slippages less recovery & upgrade) was near-zero. This is low and a tad better than trends for leading banks, but presentation of NPL flows on a cumulative basis vs. quarterly for peers makes it less comparable – we hope mgmt. will change this. Provisions at 1.1% of average loans included provisions on NPLs, stressed loans (possibly Future group) and securitised receipts. Gross NPL fell to 4.5% of loans and total stressed loans are manageable (including restructured loans of 1.5% and ECLG of 1.2%). Coverage on NPLs is adequate at 71% and the bank carries buffer provisions at 0.4%. We see credit costs staying low at ~1% over FY23-24 and downside to that could lift earnings estimates.
Loan growth improves; SME is key: Overall loan growth improved from 6% in Q2 to 8% y-o-y in Q3. While the low-margin international loans grew faster at 21% y-o-y, even domestic loan growth improved from 5% in Q2 to 6%. There was some improvement in SME loans (partly led by disbursals of ECLG lines) and momentum on retail credit is strong; corporate lending remains soft. This is positive as it would lift NII growth that has moderated to 6% y-o-y, among the weakest across leading banks. We expect slight pick-up in loan growth from current levels and see 10% CAGR over FY21-24e, lower than key private bank peers.
Other operating details & subs’ performance: Fee income grew 7% y-o-y and operating cost growth was low at 1% y-o-y. Core PPOP was up 10% y-o-y. MTM treasury losses on G-Secs were low. Subsidiaries are growing well with SBI Life’s VNB up 66% y-o-y, SBI Cards’ profit up 28% & SBI Funds’ profit up 29% y-o-y.
BUY stays: We tweak our FY22-24 EPS by 4-8% as we incorporate lower provision estimates. ROA is low at ~0.8%, but leverage lifts ROE to ~14%. We continue with our Buy rating and roll forward our PT to Rs 650 (from Rs 600) based on 1.5x Dec-23E adj. PB for the bank.
Financial Express is now on Telegram. 
