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SBI: Quarterly profits stay flattish

Feb 14, 2013

State Bank of India (SBI) declared its results for the third quarter of the financial year 2012-13 (3QFY12). The bank has reported 9.5% YoY growth in interest income and 4% YoY growth in net profits for the quarter. Here is our analysis of the results.

Performance summary
  • Interest income grows by 9.5% YoY in 3QFY13, on the back of a 16% YoY growth in advances.
  • Other income grows by 76% YoY in 3QFY13 on the back of higher forex income and profit on sale of investments.
  • NIMs (net interest margins) move southwards from 3.8% in 9mFY12 to 3.4% in 9mFY13, as the bank reduced yields and costs increased.
  • Net NPAs (Non Performing Assets) increased from 2.22% in 9mFY12 to 2.59% in 9mFY13.
  • Net profit rises by 4.1% YoY in 3QFY13 despite a fall in NII, on higher other income.
  • Capital adequacy ratio stood at 12.21% (Tier-1 ratio at 8.66%) at the end of 9mFY13 as per Basel II.

Financial performance snapshot
Rs (m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Interest income 277,144 303,436 9.5% 779,387 888,729 14.0%
Interest expense 161,956 191,892 18.5% 462,386 556,200 20.3%
Net Interest Income 115,188 111,545 -3.2% 317,001 332,529 4.9%
Net interest margin (%)       3.8% 3.4%  
Other Income 20,730 36,485 76.0% 89,747 104,882 16.9%
Other Expense 63,318 70,122 10.7% 186,980 204,200 9.2%
Provisions and contingencies 24,074 26,679 10.8% 99,498 69,498 -30.2%
Profit before tax 48,526 51,229 5.6% 120,269 163,712 36.1%
Tax 15,895 17,268 8.6% 43,699 55,655 27.4%
Profit after tax/ (loss) 32,630 33,961 4.1% 76,570 108,058 41.1%
Net profit margin (%) 11.8% 11.2%   9.8% 12.2%  
No. of shares (m)         671.0  
Book value per share (Rs)*         1250.8  
P/BV (x)         1.8  
* (Book value as on 31st December 2012)

What has driven performance in 9mFY13?
  • Despite having low cost deposits (CASA-current account and savings account) of the size of the balance sheets of smaller banks in India, SBI managed to grow the same by 10% YoY in 9mFY13. However a large chunk of the deposit growth came in from term deposits. Customers preferred to park their funds in higher yielding deposits (fixed deposits), versus in lower yielding (savings accounts). The country's largest bank continued to reap the advantage of having the largest franchise in India. While the CASA to total deposits ratio has slipped from 44.7% in 9mFY12 to 42.4% currently, the bank is not worried as it still sees a 42-44% CASA base as very healthy. And this is in any case far superior to the levels seen for other public sector banks.

  • With regards to net interest margins (NIM), global NIMs for the 9 month period saw a decline of 0.4% coming to 3.4% at the end of 9mFY13 from 3.8% at the end of 9mFY12. The bank saw a reduction in its yield on advances in order to be more competitive in the market as well as an increase in costs of funds; however cost of funds is still one of the lowest in the sector. Domestic NIMs stood at 3.72% at the end of December '12. The bank has guided for an overall domestic NIM of 3.7-3.75% by the end of FY13. Advance growth was seen across most segments and especially in the agri, international and large corporate segments. It maintained its leadership position in the home loan space, and continues to see strong growth in auto loans.

    Agri, international and large corporate advances stay strong
    (Rs m) 9mFY12 % of total 9mFY13 % of total Change
    Advances 10,009,650   11,566,910   15.6%
    Agriculture 806,680 8.1% 1,002,300 8.7% 24.3%
    International 1,340,630 13.4% 1,721,490 14.9% 28.4%
    Retail 1,753,220 17.5% 1,998,240 17.3% 14.0%
    Home Loans 990,190 9.9% 1,131,630 9.8% 14.3%
    Auto Loans 174,070 1.7% 228,460 2.0% 31.2%
    SME 1,529,510 15.3% 1,703,160 14.7% 11.4%
    Mid Corp 1,669,030 16.7% 1,785,090 15.4% 7.0%
    Large Corporates 1,245,670 12.4% 1,566,840 13.5% 25.8%
    Deposits 10,009,650   11,566,910   15.6%
    CASA 4,473,580 44.7% 4,910,000 42.4% 9.8%
    Tem deposits 4,940,740 49.4% 5,872,120 50.8% 18.9%
    Credit deposit ratio 100.0%   100.0%    

  • The bank's fee income showed a decrease of 3.4% YoY, bringing the fee to total income ratio to 17% in 9mFY13 (19% in 9mFY12). However, due to higher profit on sale of investments, and forex income, other income saw a 17% YoY increase in 9mFY13.

  • The bank's capital adequacy improved to 12.21%, with its Tier-1 ratio at 8.66% at the end of December 2012, compared to 11.6% last year. In order for the bank to achieve asset growth, a further capital addition is necessary, of which it expects around Rs 30 bn from the government in March. This comes post Rs 79 bn capital infusion it received at the end of March 12.

  • SBI continued to feel the heat on the NPA front with gross NPAs rising to 5.3% of advances in 9mFY13 from 4.61% in 9mFY12. Net NPAs also deteriorated to 2.59% (2.22% in 9mFY12). The Bank has reached a provision coverage ratio of 61.5% in 9mFY13, compared to 62.5% at the end of 9mFY12.

  • Slippages under the RBI's restructured assets scheme stood at 31% at the end of December 2012. Slippages to restructured book from April-Dec amounted to Rs 10 bn. As per the new RBI guidelines the bank was able to remove few accounts from the restructured category and classify these as standard assets post a satisfactory performance from these accounts for 2 years. The management has indicated that some of the slippages that took place in the third quarter, around Rs 15-20 bn have already been restructured. Plus the Suzlon exposure still needs to be restructured which will take place next quarter. With this, most of the pain accounts will have been taken care of in FY13, and the new fiscal will be better on this front.

  • The bank saw a high level of fresh slippages, of almost Rs 82 bn, trade and services accounted for 14.5% of total NPAs, followed by iron and steel (9.9%) and textiles (6.7%). There was a huge spike in the NPAs in the mid-corporate book which increased from 6.5% to 10.9% of advances in 9mFY13. Almost every other counter also saw a spike in NPA accounts, except for large corporate, retail and the international book.

What to expect?
At the current price of Rs 2,236, the stock is valued at 1.4 times our estimated FY15 adjusted book value. The bank has seen a decent performance on the core business front, however the NII growth has been muted on lower yields and increased costs. However, the bank intends to sustain domestic margins at 3.7% and above. The bank has been able to sustain its NIMs at reasonable levels even in light of a rising interest rate environment on account of its large CASA base and huge franchise. Profit growth for the year so far still come a good 40% higher than the levels seen last year. On the plus side, the bank does not have any unamortized pension on its books or too much exposure to bulk deposits or to power distribution companies, unlike its peers.

There may however be some further pains going forward on the NPA front, with incremental slippages and restructurings seeing an increase. Some big accounts such as that of Suzlon are yet to be restructured. Capital concerns have been allayed temporarily; however the bank may still need some more capital by the end of FY13 to sustain growth and to shore up capital for Basel III requirements. We reiterate our Hold view on the stock.

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Jun 23, 2021 (Close)