State Bank of India Q2 FY24 Earnings Conference Call Insights

Key highlights from State Bank of India (SBIN) Q2 FY24 Earnings Concall

• Financial Performance
  • Net profit increased 8.03% (YoY) to INR14,330 crores.
  • Operating profit declined 8.07% YoY to INR19,417 crores.
  • ROA improved 34 bps YoY to 1.10% in H1 FY2024 but moderated 3 bps YoY to 1.01% in Q2 FY24.
  • ROE increased significantly by 649 bps YoY to 22.57% in 1H24.
  • NIM grew 12.27% YoY due to higher yields and credit growth.
  • Domestic NIM fell 12 bps YoY to 3.43% in Q2 FY2024 due to higher cost of deposits.
  • Opex increased 34.60% YoY, mainly due to additional provisions for impending wage revision.
• Business Growth
  • Domestic advances was up 13.21% YoY, led by growth in SME of 22.75% YoY, retail of 15.68% YoY and agriculture of 14.76% YoY.
  • Corporate advances rose slower at 6.62% YoY.
  • Domestic deposits grew 11.80% YoY, driven by current and savings account growth.
• Excess Credit Portfolio Quality
  • Stands at INR3.2 trillion as of Sep 2023.
  • Accounts for 25% of total retail portfolio of INR12.43 trillion.
  • Gross NPA ratio low at 0.69%, indicating resilience of portfolio.
  • 6% of customers are govt./armed forces employees, 12% are corporate employees.
• Impact of Wage Revision
  • Additional provision of INR3,417 crores in Q2FY24 for upcoming wage revision.
  • Provisioning rate increased retrospectively to 14% from 10% from Nov 2022.
  • Resulted in decline in Q2 operating profit and other profitability metrics.
  • Sensitivity is about INR100 crores per month for every 1% increase.
  • Expect about INR400 crores per month higher wage bill after revision.
• Asset Quality Improvement
  • Gross NPA ratio declined 97 bps YoY to 2.55%, lowest in over 10 years.
  • Slippage ratio improved 16 bps YoY to 0.70%.
  • Credit cost improved year over year.
  • PCR including AUCA increased 39 bps YoY to 91.93%.
  • Digital and Subsidiaries Progress
  • 61% of savings accounts sourced digitally through YONO.
  • Increased traction in cross-selling through YONO.
  • Earned INR190 crore fee income through YONO in Q2 FY24.
  • YONO opened to customers of other banks, saw 25 lakh registrations.
• Margin and Profitability Outlook
  • Expect margins to remain around current levels or compress 3-5 bps more.
  • Impact is mainly from higher deposit costs.
  • Loan pricing concessions already offered, seeing good traction.
  • Deposit cost increases have bottomed out.
  • Target is to be a 1.2% ROA bank.
  • Budgeting and monitoring aligned to 1.2% ROA target.
• Corporate Loan Pipeline and Outlook
  • Have pipeline of INR3.4 trillion proposals awaiting approval.
  • 4 trillion proposals pending disbursement.
  • Projects cater domestic economy so global issues may not impact much.
  • Expects approved proposals to get disbursed and aiming to see lower double digit growth in corporate loans.
• Overall Loan Growth
  • SME and retail growth sustainable and outpacing projections.
  • Guidance is around 14% growth.
• Balance Sheet and Provisioning
  • Investments increased to INR17 trillion, 8.2% QoQ growth in G-Secs and SDLs.
  • Borrowings raised to fund credit growth or invest excess deposits.
  • Reversed INR1,200 crores of provisions for standard assets.
• SME Loan Growth and Portfolio
  • Grown SME book from INR3 trillion to INR3.88 trillion currently.
  • Achieved 20% growth in identified products aligned to risk appetite.
  • Introduced pre-approved loans seeing strong growth.
  • Expect to sustain 20%+ growth going forward.
  • Working capital loans seeing 57% growth indicating higher utilization.
  • Term loans growing around 25%.
  • Average ticket size up to INR50 crores.
• Deposit Rate Increases
  • Not raised deposit rates materially in last few months.
  • Bulk of deposit repricing already over.
  • Some more repricing pending which will pan out next quarter.
• International Loan Growth
  • Growing in certain markets like US, Middle East and Japan.
  • Not looking for aggressive growth internationally.
  • Expect to maintain current growth trends going forward.
• Mortgage Growth Trends
  • Mortgages remain a competitive segment, but seeing healthy traction with 20-25% sequential growth.
  • Added 150 CPCs last year aiding sourcing capabilities.
  • Expects decent growth momentum to continue.
• Savings Deposit Trends
  • Focusing more on growing current accounts, up 8% YoY.
  • Opened 30-40 lakh savings accounts and 1.4 lakh salary accounts.
  • No plans to increase savings deposit rates.