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SBI: Profits jump on strong operating performance
May 18, 2012

State Bank of India (SBI) declared its FY12 (financial year 2012) results. The bank has reported 31% YoY growth in interest income and 42% YoY rise in net profits for the year. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 33% YoY in FY12, on the back of 16% YoY growth in advances.
  • Other income grows by 9% YoY in 4QFY12, however it falls by 9% for the full year FY12.
  • NIMs (net interest margins) move up from 3.3% in FY11 to 3.9% in FY12, thus managing to contain cost of funds appreciably.
  • Net NPAs increase from 1.6% in FY11 to 1.8% in FY12 while at the gross level they moved up from 3.3% in FY11 to 4.4%.
  • Net profit rises by 42% YoY in FY12 and almost 200 times 4QFY12 on high net interest income and lower tax spends. Provisions were also contained.
  • Capital adequacy ratio stood at 13.9% at the end of FY12 as per Basel II (compared to 12% at the end of FY11) post a capital infusion of Rs 79 bn from the government.
  • The board recommends a dividend of Rs 35 per share, indicating a yield of around 2%.


Rs (m) 4QFY11 4QFY12 Change FY11 FY12 Change
Interest income 217,214 286,955 32.1% 813,944 1,065,215 30.9%
Interest expense 136,633 169,918 24.4% 488,680 632,304 29.4%
Net Interest Income 80,581 117,038 45.2% 325,264 432,911 33.1%
Net interest margin (%)       3.3% 3.9%  
Other Income 48,155 52,640 9.3% 158,246 143,515 -9.3%
Other Expense 67,938 73,710 8.5% 230,154 260,690 13.3%
Provisions and contingencies 41,570 31,404 -24.5% 103,813 130,902 26.1%
Profit before tax 19,227 64,564 235.8% 149,542 184,833 23.6%
Tax 19,019 24,061 26.5% 66,897 67,760 1.3%
Profit after tax/ (loss) 209 40,503 19297.8% 82,645 117,073 41.7%
Net profit margin (%) 0.1% 14.1%   10.2% 11.0%  
No. of shares (m)         671.0  
Book value per share (Rs)*         1215.0  
P/BV (x)         1.7  
* (Book value as on 31st March 2012)

What has driven performance in FY12?
  • Despite having low cost deposits (CASA-current account and savings account) of the size of the balance sheets of smaller banks in India, SBI saw slower growth on account of the high prevailing interest rates in the country. Customers preferred to park their funds in higher yielding deposits, versus in lower yielding account. SBI managed to grow its CASA base by only 6% YoY in FY12. A large chunk of the bank's 15% YoY deposit growth over the past year came in from term deposits. The country's largest bank continued to reap the advantage of having the largest franchise. While the CASA to total deposits ratio has slipped from 47% in FY11 to 44% in FY12, the bank is not worried as it still sees a 43-44% CASA base as very healthy.

  • With regards to net interest margins (NIM), these saw a big improvement of 0.6% coming to 3.9% at the end of FY12 from 3.3% at the end of FY11 and 2.7% at the end of FY10. The bank saw an increase in yield on advances, over the past year on the back of rampant rate hikes by the cental bank. Cost of funds also jumped for the same reason, however SBI was able to capitalize on its large CASA base. Going forward, the bank expects NIMs to remain in the 3.5-3.75% range, and definitely stay at above 3.5%. Advance growth was seen across segments and especially in the agri and international segments. Overall, the bank managed to grow in line with the sector average for the year. SBI maintained its leadership position in the home loan space, and continues to see strong growth in auto loans. The bank expects a 16-18% growth in advances in FY13, in line with the expectations for the sector.

    Balanced growth across the board
    (Rs m) FY11 % of total FY12 % of total Change
    Advances 7,718,020   8,936,130   15.8%
    Agriculture 948,260 12.3% 1,169,100 13.1% 23.3%
    International 1,093,580 14.2% 1,357,240 15.2% 24.1%
    Retail 1,645,760 21.3% 1,824,270 20.4% 10.8%
    Home Loans 899,130 11.6% 1,027,390 11.5% 14.3%
    SME 1,196,760 15.5% 1,391,750 15.6% 16.3%
    Large Corporates 1,087,410 14.1% 1,250,230 14.0% 15.0%
    Deposits 9,106,740   10,436,470   14.6%
    CASA 4,304,530 47.3% 4,581,200 43.9% 6.4%
    Tem deposits 4,802,210 52.7% 5,855,270 56.1% 21.9%
    Credit deposit ratio 84.8%   85.6%    

  • The bank's fee income showed a growth of 5% YoY, bringing the fee to total income ratio to 21% in FY12 (24% in FY11). However, due to lower profit on sale of investments, dividend, and forex income, other income saw a 9% decline YoY in FY12.

  • The bank's capital adequacy increased to 13.9%, with its Tier-1 ratio at 9.79% at the end of March 2012, compared to 12% last year. During the year, the bank allotted 36 m shares at Rs 10 each, at a premium of Rs 2181.7 per share, aggregating to Rs 79 bn. Post this, the government's stake in the bank increased from 59.4% to 61.6% currently.

  • The bank saw an improvement this time on the provisioning account. In 4QFY12, provisions were down 24.5% due to fall in investment depreciation and loan loss provisions. For the full year, they increased by 26% YoY, much lower than the 60% increase for the 9 month period.

  • SBI did feel the heat on its NPAs in the past 12 months with gross NPAs rising to 4.4% of advances in FY12 from 3.3% in FY11. Net NPAs increased to 1.8% (1.6% in FY11), on higher provisioning. The bank has reached a provision coverage ratio of 68% in March 2012, compared to less than 60% at the end of FY10 and 65% at the end of FY11. SBI has been proactive on the provisioning front. The bank also saw a number of upgradations and recoveries, with lower writeoffs in FY12. This was despite higher slippages.

  • Slippages under the RBI's restructured assets scheme stood at 25.8% at the end of March 2012. Slippages to restructured book for FY12 amounted to Rs 18 bn. There was a huge spike in the NPAs in the agricultural book which increased from 6.4% (FY11) to 9% of advances in FY12. The mid-corporate segment also saw a spike in NPA levels, and it has been seeing the maximum stress in this counter on account of the higher interest rates and slowdown in the economic environment. Large slippages in the restructured book were seen in the power, aviation (Air India), and agri space in FY12. The bank has a 8.8% exposure to the infra sector, out of which only 4.1% is to the power sector and it does not have much exposure to SEBs. However, with the current macro environment, and high rates still prevailing in the market, further stresses cannot be ruled out on the overall book. However, the management is confident that it has taken care of most of the pain in the book. It does not expect a sudden spike in restructuring going forward as it has been prudent in classification and provisioning so far.

  • Profits were up a whopping 200 times in 4QFY12, compared to 4QFY11, as last year a huge charge was taken on pension provisioning last year. As of now, the bank does not have any unamortized pension liability, the only PSU bank with such a distinction. On a strong operating performance, lower tax outlay and containment of provisions, profits were up 42% YoY in FY12, coming in much higher than our estimates.

What to expect?
At the current price of Rs 2,016, the stock is valued at 1.8 times our estimated FY14 adjusted book value. The bank has seen a robust performance on the core business front, with a health growth in NII and a sustained improvement in margins. The bank has been able to increase its NIMs even in light of a rising interest rate environment on account of its large CASA base and huge franchise. Now with the RBI's monetary easing, it may see even more margin expansion and core income growth. It currently has one of the lowest base rates in the industry. Profit growth for the year has still come in well above estimates on account of lower NPA provisioning and sustained operating profit growth. On the plus side, the bank does not have any unamortized pension on its books, which most of its peer banks still hold.

There may be some further pains going forward on the NPA front, with incremental slippages seeing an increase. Capital concerns have been allayed temporarily; however the bank will still need some more capital in FY13-14 to sustain growth. However it has been opting for capital conservation techniques through internal accruals. At the current valuations we have a cautious view on the stock, since it already met our target price during the March 2012 StockSelect performance review.

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