State Bank of India Q3 FY24 Earnings Conference Call Insights

Key highlights from State Bank of India (SBIN) Q3 FY24 Earnings Concall

• Quarterly Performance
  • Net profit for Q3 FY24 stands at INR 9,164 crore, up 20% YoY despite providing for wage revision and pension liabilities.
  • ROA has improved by 7 bps YoY to 0.94% and ROE has improved by 88 bps YoY to 19.47% for 9MFY24.
  • ROE growing faster than loan book growth.
  • Cost-to-income ratio stands at 57.35% excluding one-time pension liability items, with overheads showing sequential decline of 3.1%.
  • Overall public sector capital investment has jumped 3 times from FY15 to FY25 budget estimates.
  • Gross tax to GDP projected to touch 11% plus in FY25, highest in 16 years.
  • Credit growth robust across all segments like retail, agri, SME and corporate.
  • Deposit growth has rebounded but credit growth momentum has increased deposit-credit wedge.
  • CET1 ratio at 10.38% after considering 9MFY24 profits; bank open to equity capital raise if growth trends higher.
• Asset Quality
  • Gross NPA ratio improved by 72 bps YoY to 2.42% in Dec’23, lowest in over 10 years.
  • Net NPA ratio improved by 13 bps YoY to 0.64%.
  • Slippage ratio for 9MFY24 improved by 5 bps YoY to 0.67%.
  • Credit cost for 9MFY24 stands at 0.25%, improved by 12 bps YoY.
  • PCR including AUCA stands at 91.49% and PCR for Q3FY24 at 74.17%.
  • Retail portfolio asset quality is best-in-industry across home loans, cars loans and personal loans.
• Digital Banking
  • 59% of savings accounts opened through YONO in 9MFY24.
  • Sourced INR 95,000 crore business through analytics, up 37% YoY.
• Wage and Pension Provisions
  • Provided INR 12,718 crore towards wage revision in 9MFY24 at provisioning rate of 17%.
  • Additional INR 5,400 crore wage revision provision to be made in Q4FY24.
  • Provisions to crystallize into actual liability at a later date.
  • Provided INR 5,400 crore for addressing pension anomaly between employees.
  • Matter was sub-judice since 2002 and nearing resolution now.
  • Provided INR 1,700 crore for dearness relief neutralization of pre-2002 pensioners.
  • Actuarial assessment suggested providing for these likely liabilities.
• Credit Cost and Growth
  • Strengthened underwriting practices, risk pricing and portfolio mix are keeping credit costs low.
  • Retail LMS ensures quality control across large network.
  • Corporate credit committees ensure prudent underwriting.
  • Expect to grow around 14-15% in line with nominal GDP growth trends.
  • Selective lending given risk focus, but have capital and liquidity to support 18-20% growth.
  • ROE targeting over 20%; incremental ROE will support internal capital generation
• Liquidity Position
  • 131% liquidity coverage ratio.
  • 66% credit deposit ratio as of Dec’23.
  • No liquidity challenge to support credit growth.
• Margins Sustainability
  • Expect margins to be maintained around current levels.
  • Maybe 2-3 basis points dip at maximum.
  • Most of the deposit repricing of the past is over now.
• Interest Rate Outlook
  • Expect RBI to cut rates in 2nd or 3rd quarter as inflation heads towards 4%.
  • Impact on SBI treasury depends on how T-bill and G-sec yields move by Mar’24.
  • RBI has decoupled from FOMC; taking decisions based on own assessment.
• Productivity Growth
  • Employee productivity has jumped from INR 18.77 crore per employee in 2019 to INR 29.78 crore now.
  • Leveraging analytics, exploring GenAI applications and new technologies.
  • Multi-pronged approach to stay ahead of opportunities and customer needs.
• Cost-to-Income Ratio
  • Expect significant reduction in cost-to-income ratio with scale and productivity gains.
  • Aiming to be the most profitable company in India with potential for INR 1 trillion profit.
• Corporate Banking Growth
  • Have existing pipeline of INR 4.6 trillion corporate loans.
  • Will buy wholesale portfolios from constrained private banks if it meets risk appetite.
• Staff Cost Analysis
  • FY24 staff cost budget is INR 77,127 crore, includes INR 18,127 crore for wage hike impact.
  • Staff cost includes around 300,000 pensioners which is high.
  • Improving staff productivity via digital, analytics to moderate cost-to-income ratio.
  • Additional business from digital channels will fund rising pension obligations.
  • Very low 1% staff attrition rate also helps cost optimization.