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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.
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