SBI: After a good Q1 show, all eyes will be on pick up in growth

Lower costs indicate mergers with associate banks is paying off in terms of better synergies, but credit offtake remains muted

Public lender State Bank of India (SBI) reported its highest ever quarterly PAT of Rs 6,504 crore for Q1FY22, which was 55 per cent higher year-on-year than the PAT of Rs 4,189.34 crore for Q1FY21. This was also a sequential improvement over PAT of Rs 6,451 crore in Q4FY21, and came in ahead of Bloomberg consensus estimate of Rs 5,855 crore. The net interest income (NII) rose 3.74 per cent YoY to Rs 27,638 crore versus Rs 26,641 crore and it was up 2 per cent QoQ over Rs 27,067 crore. The domestic Net Interest Margin or spread was marginally lower at 3.15 per cent versus 3.24 per cent (YoY) and stable versus 3.11 per cent (QoQ).

There was a sharp drop in loss provisioning at Rs 5,030 crore versus Rs 9,420 crore (YoY) and Rs 9,914 crore (QoQ). Fee-based and other non-interest incomes rose to Rs 11,803 crore, up 24 per cent YoY versus Rs 9,497 crore, but it was down 27 per cent QoQ versus Rs 16,225 crore.

The gross NPA ratio was at 5.32 per cent of assets, which was down YoY from 5.44 per cent and up QoQ from 4.98 per cent. The net NPA ratio was at 1.77 per cent, down YoY from 1.86 per cent and up QoQ from 1.5 per cent. Total non-NPA provisions (not included in Provision Coverage Ratios) are at Rs 29,816 crore, while Covid-related contingency provisions are at Rs 9,065 crore.

So, there was NPA slippage in sequential terms. Capital Adequacy Ratio remains adequate at 13.66 per cent but it has dropped QoQ from 13.74 per cent. Tier-1 and CET-1 ratios have also dropped. According to the bank, July saw a major improvement in activity over June and there was a pullback in slippages. This should show up in the Q2 results.

Expenses have been controlled. Interest costs have dropped YoY and QoQ due to the benign rate cycle. Employee costs have also reduced both YoY and QoQ. Overheads have also reduced QoQ. This could be a sign that the mergers with associate banks, etc., is paying off in terms of cost cutting and better synergies and efficiencies.    

Credit growth is an area of concern, especially given that this is, by far, India’s largest bank in terms of geographical coverage. Overall, advances grew 5.79 per cent YoY and fell by 0.6 per cent QoQ. Given that Q1FY21 was hit much worse by the lockdowns during first Covid wave than Q1FY22, which was hit by second Covid wave, the very low credit growth and the contraction during the quarter under review, versus Jan-Mar 2021, suggests a serious slowdown in the broader economy. Corporate credit has fallen both sequentially and annually while retail loans have grown marginally QoQ and 16.5 per cent YoY. Mortgages grew 11 per cent YoY. The return on assets is low at 0.57 per cent, but it is improving. The return on equity is also low at 12.1 per cent though this is also due to the large equity base.

The market responded positively to the results, with net gains of over 2 per cent per share, which closed at Rs 456 apiece, though profit booking pulled the stock down from a record high of Rs 467. SBI has outperformed the Nifty and Bank Nifty comfortably for the last year and also in the past month.