State Bank of India Q4 FY24 Earnings Conference Call Insights

Key highlights from State Bank of India (SBIN) Q4 FY24 Earnings Concall

• Financial Performance
  • Highest ever net profit of INR 61,777 crores in FY24, up 21.59% YoY.
  • Q4 FY24 net profit at INR 20,698 crores, up 125% sequentially.
  • Absorbed wage revision, pension liabilities without impacting long-term profitability.
  • ROA improved to 1.04% in FY24 from 0.96% in FY23.
  • ROE at 20.2% in FY24, up 89 bps YoY, aspiring for sustainable ROE above 15%.
• Global Economy
  • Global growth resilient at 3.2% in 2024, expected to remain same in 2025.
  • Global inflation easing, projected to fall from 6.8% in 2023 to 4.5% in 2025.
  • Geopolitical tensions and weather events pose risks to economic growth.
  • Indian GDP growth expected to improve, backed by investment demand and sentiment.
  • Indian CPI inflation moderating, estimated at 4.5% in FY25 vs 5.4% in FY24.
• Asset Quality
  • Gross NPA ratio improved 54 bps YoY to 2.24% in March 2024, lowest in over 10 years.
  • Net NPA ratio improved 10 bps to 0.57% in March 2024.
  • Slippage ratio improved 3 bps YoY to 0.62% in FY24.
  • Credit cost improved 3 bps YoY to 0.29% in FY24.
  • Well provided with PCR of 91.89% including AUCA, 75% excluding AUCA.
• Digital Initiatives
  • 61% of savings bank accounts opened through YONO in FY24.
  • Leveraging analytics, sourced INR 1.37 trillion business through analytical leads, up 32% YoY.
  • Focus on increasing current account deposits while maintaining leadership in savings deposits.
• Cost Optimization
  • Cost-to-income ratio at 55.66% including wage revision, 49.34% excluding one-time items.
  • Aim to lower cost-to-income ratio by focusing on income growth.
  • Low employee attrition rate of 1.43% reflecting employer-for-life culture.
  • Continuously monitoring deposit concentration to contain dependency on wholesale funding.
• Investment Profits
  • Profit on investment/revaluation was INR 3,463 crore in Q4.
  • With revised valuation norms, MTM gains/losses on AFS portfolio will reduce.
  • Bank to focus on earning trading gains on fixed income and equity portfolios.
  • Overall MTM fluctuations expected to reduce going forward
• NPA Transfer
  • Transferred 24 NPA accounts with outstanding INR 7,451 crore to NARCL.
  • Recovery from these accounts around 15-17% at INR 383 crore.
  • Around 10 out of the 24 accounts transferred to NARCL.
• Credit Growth and Capital Raise
  • Bank expects 13-15% loan book growth for FY25, based on anticipated 6.8% GDP growth for next year.
  • Current loan book stands at around INR 37 trillion.
  • Bank can support loan book growth of around INR 7 trillion with existing capital.
  • No big capital raise planned as of now, but situation will be evaluated.
  • Cost of raising Tier 1 capital around 5.6% after tax, mindful of capital costs.
  • May consider raising capital if right situation arises, but comfortable currently.
• SBI Wealth
  • Bank revamping SBI Wealth, focusing on premium and wealth banking segments.
  • Offering physical relationship managers beyond certain threshold, virtual RMs otherwise.
  • Targeting younger clientele, launched pilots in Bangalore and Mumbai.
  • Aims to reach AUM of INR 1 trillion in SBI Wealth in a year.
  • Expanding services beyond metro/urban areas to Tier 3/4 towns.
• Employee Expenses and NIM
  • Going forward, additional employee cost expected to be around INR 500 crore per month, translating to around INR 6,000 crore for the full year.
  • However, savings of around INR 7,000 crore from wage provision of previous year.
  • For FY25, staff cost expected to be around INR 65,000-70,000 crore.
  • Higher end accounts for potential DA increases not yet visualized.
  • NIM improved from 3.41% in Dec’23 to 3.43% in Mar’24.
  • International book NIM also largely stable with marginal changes.
  • Bank aims to maintain NIM around current levels in near future.
  • Cost of deposits has plateaued since Oct-Dec’23.
• Growth Capital
  • With CET1 ratio of 14.28%, SBI can grow loan book by another INR 7 trillion (21%).
  • First priority is organic capital accretion through healthy profits and ROE of 20%.
  • Plans to raise AT1 capital, hopes for revisiting valuation norms.
  • Open to equity raise at right pricing if needed, but growth won’t be capital constrained.
• NDS/ECL Provisioning
  • Earlier estimated ECL provision requirement of ~INR 30,000 crore over 5 years.
  • With improved book quality and profits, not a major concern now.
  • Even if required, INR 6,000 crore p.a. provision manageable with INR 60,000 crore profits.
• Corporate Loan and Book Growth
  • Corporate book grew 16% YoY in FY24, scope for further increase.
  • Overall loan growth target of 13-15% linked to nominal GDP growth plus 2%.
  • Competitive intensity provides yield improvement opportunities.
  • Investing in corporate lending capabilities like project evaluation.
  • Strong corporate book growth in Q4, unlike large private banks.
  • Growth entirely organic, driven by underwriting and downselling approach.
  • No inorganic component, bank focused on building fee income portfolio.
• Credit-Deposit Ratio
  • Domestic CD ratio improved further in Q4 FY24.
  • Ideal target for a bank of SBI’s size is around 75% on domestic book.
  • Some more room for improvement from current levels.
• Provisions
  • Around INR 4,000 crore of provision write-backs from standard provisions and others in FY24.
  • Key reversals include INR 900 crore for NPA provisioning and INR 1,306 crore of other provisions.
  • Restructured book well-provided for but performing better than expected.
  • Bank does not foresee need to utilize full restructured provisions currently held.
• Loan Growth Guidance
  • Long-term loan growth guidance of 13-15%.
  • Outstanding technical write-offs at INR 175,202 crore (AUCA book).
  • Recoveries from written-off accounts at INR 6,934 crore in FY24.
• Technical Write-offs/Recoveries
  • No major lumpy accounts left for recoveries/upgrades.
  • Primarily smaller accounts remaining in pipeline.
  • Strategies to be recalibrated based on stock of such assets.
  • Upgrades of 13% to opening GNPLs could be a reasonable base case.
• Deposit Growth
  • Deposit growth at 11% YoY in FY24, slightly lower than industry.
  • Initiatives underway for better deposit accretion through retail/corporate focus.
  • Optimism about outpacing industry next year, aided by digital channels like YONO.