State Bank of India Q3 FY22 Earnings Conference Call Insights

Key highlights from State Bank of India (SBIN) Q3 FY22 Earnings Concall

Management Update:

• SBIN said its team is committed to deliver 15% plus ROE consistently over the long term and as credit growth picks up the bank expects the profitability ratios to improve further.

Q&A Highlights:

• Mahrukh Adajania  from Edelweiss asked about recoveries that excluding inter quarter recoveries, what would be the gross slippage in 3Q. Dinesh Kumar Chairman said that the bank goes for net slippages, which is INR2,334 crores for 3Q. The bank added that as of now, it feels the slippages are little, and whatever little is seen the bank is in a position to recover well.

• Mahrukh Adajania from Edelweiss also enquired about the rate outlook that is hardening, in terms of loans and deposits, how much of the loans would be repo linked. Dinesh Kumar Chairman answered that the bank’s repo linked loan is about 0.24%. The bank’s external benchmark loan book is about 22%.

• Kunal Shah with ICICI Securities asked about the outlook for corporate credit growth given the competition. Dinesh Kumar Chairman said that as at the end of Sept. 2021, the bank’s unutilized debits were as high as 52%, from which it came to 43%. However, the bank still has unutilized limits of about INR200,000 crore. In the term loans also there is slight improvement in undisbursed term loans. Going forward, the bank hopes to see it sustained and consequently witness much credit growth numbers than in 3Q22.

• Kunal Shah with ICICI Securities enquired about the standard asset provisioning, if it’s more towards the restructured pool. Dinesh Kumar Chairman answered that it is essentially relating to one of the account, which was under some stress. Mainly it is on account of that and some bit of restructuring thing.

• Mona Khetan of Dolat Capital asked about the near term outlook on cost to assets for nine-months which stood at 1.8% for SBI.  Dinesh Kumar Chairman said the cost to asset ratio right now is at 1.78% that has come down from 1.95%. The bank expects it to come down once the balance sheet number grows and also it will not lead to much of an incremental cost for the bank.

• Mona Khetan of Dolat Capital asked that on the restructured book of INR33,000 crore, once the non-COVID MSME restructuring is included under the earlier relief scheme and adjust it to any overlaps with the current COVID related restructured book, where the total  restructured book stand at. Dinesh Kumar Chairman said the total restructured book would be at around INR40,000 crore; restructured per say of INR32,000 plus the previous book.

• Mona Khetan of Dolat Capital also enquired about the total ECLGS disbursement for 3Q22 and for the previous quarter. Dinesh Kumar Chairman said the outstanding is around INR31,000 crores for 3Q and it was at INR24,000 crore last quarter.

• Akash Jain with Ajcon Global asked about the recovery from written off account in 3Q22 and recovery expectations from NCLT accounts in coming quarters. Dinesh Kumar Chairman said for 3Q22, it’s INR1,500 crores and for the nine-month it’s INR5,600 crores. On NCLT accounts, the bank said it won’t be differentiating between NCLT, but overall the bank expects a recovery of about INR8,000 crore in FY22.

• Jai Mundhra with B&K Securities asked about the INR1,490 crores of MTM depreciation in 3Q22 and if it’s mainly pertaining to G-Sec Bonds.  Dinesh Kumar Chairman replied that the investment depreciation is only about INR60 crores. The remaining is the accelerated provision made on the security receipts (SR) maturing over the next 2-3 years. Since SRs are held as part of investments, it is reflecting in investment depreciation, but per say it’s about INR60 crores.

• Jai Mundhra with B&K Securities also asked about the gross book value of SR and after the lengthy provision, what’s the gross book value of SR. Dinesh Kumar Chairman said INR8,600 is the gross SR and now the bank has provided up to 87% of the book.

• Jai Mundhra with B&K Securities queried that on the MTM, if the G-Secs were to go up, what is the bank’s threshold of the investment AFS book or until what yield the bank is protected. Dinesh Kumar Chairman answered that the bank is protected till about between 6.95 and 7.

• M B Mahesh of Kotak Securities asked how the bank is looking at capital adequacy number, considering the growth comes back, will the bank be looking at a possible capital raise anytime soon or the internal accruals are sufficient to manage near term growth numbers. Dinesh Kumar Chairman answered that looking at the 9% kind of growth, with the plough back of the profit at the end of the year; the bank will be comfortably placed. However, SBIN said it will see the growth trend in FY23 and accordingly take the call.

• Gaurav Kochar of Mirae Asset asked about the incremental yield versus the on book yield on loans, how high is the incremental yield given that large part of growth is coming from retail.  Dinesh Kumar Chairman replied that retail growth is 14-15%. But the chunky growth comes from the corporate book, so a significant part of the bank’s loan book is now linked to external benchmark or MCLR. Therefore, about 50% is MCLR and about 22% external benchmark linked rate.

• Manish Shukla with Axis Capital asked about breakup of the loan book with respect to MCLR versus fixed rate, while EBLR being 22%. Dinesh Kumar Chairman said MCLR is 49% and fixed rate is about 17%.

• Adarsh Parasrampuria with CLSA asked if the bank will need to raise capital over the course of the next 12 months as ROEs are better than growth from March onwards. Dinesh Kumar Chairman replied that bank will take a call in the next financial year. But as of now, first half of the next financial year, whatever growth is likely to be there, it can be adequately supported by the capital the bank has.