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SBI: CASA buoys profits
Aug 12, 2010

SBI declared its 1QFY11 results. The bank has reported 11% YoY growth in interest income while its net profits have remained flat year on year. Here is our analysis of the results.

Performance summary
  • Interest income grows by 6% YoY in 1QFY11 on the back of 21% YoY growth in advances.
  • Net interest margins improve from 2.3% in 1QFY10 to 3.2% in 1QFY11 led by robust growth in low cost deposit base (CASA).
  • Cost to income ratio reduces from 57% in 1QFY10 to 44% in 1QFY11 due to write back of employee cost provisioning.
  • Gross NPAs rise to 3.1% from 2.8% in 1QFY10 while net NPAs remain at 1.7%.
  • Capital adequacy ratio at 13.5% (as per Basel II) at the end of 1QFY11. Capital raising scheduled later in FY11.


Standalone financials
Rs (m) 1QFY10 1QFY11 Change
Interest Income † 174,727 †††† 184,521 5.6%
Interest Expense 124,478 †††† 111,484 -10.4%
Net Interest Income ††† 50,249 ††††††† 73,037 45.4%
NIM (%) 2.3% 3.2%  
Other Income ††† 35,687 ††††††† 36,899 3.4%
Other Expense ††† 49,197 ††††††† 48,593 -1.2%
Provisions and contingencies †††††† 1,727 ††††††† 15,514 798.3%
Profit before tax ††† 35,012 ††††††† 45,829 30.9%
Tax ††† 11,707 ††††††† 16,687 42.5%
Profit after tax/ (loss) ††† 23,305 ††††††† 29,142 25.0%
Net profit margin (%) 13.3% 15.8%  
No. of shares (m)   ††††††††† 634.9  
Book value per share (Rs)*   †††††† 1,038.8  
P/BV (x)   †††††††††††††† 2.7  
* (Book value as on 30th June 2010)

What has driven performance in 1QFY11?
  • Having the largest franchise in the country particularly worked to SBI's advantage this quarter as the bank managed to garner some large corporate salary accounts including that of the Indian Military and technology major IBM. These led to the bank's low cost deposit (CASA) base growing by 32% YoY and comprising 48% of the total depositr base. Also what helped buoy the margins of the bank were the repricing of term and bulk deposits. While the former were repriced as much as 3% lower, most of the bulk deposits were retired. The bank still has Rs 170 bn worth of term deposits to be repriced over the next 3 quarters. These could help it sustain NIMs at the current levels despite rising interest costs. Interestingly, SBI's CASA base is now bigger than the balance sheet size of 50% of banks in India. In rural deposits the proportion of CASA stood at 58%, signifying the impact of financial inclusion.

    The bank had market share of 25% in home loans and 18% in auto loans at the end of June 2010. Also 28% of the incremental lending to large corporate were to the telecom sector this quarter.

    Balancing act...
    (Rs m) 1QFY10 % of total 1QFY11 % of total Change
    Advances 5,497,930   6,638,280   20.7%
    Agriculture 68,046 1.2% 78,920 1.2% 16.0%
    International 861,570 15.7% 1,051,680 15.8% 22.1%
    Retail 2,894,634 52.6% 3,445,690 51.9% 19.0%
    SME 964,040 17.5% 1,105,960 16.7% 14.7%
    Large corporates 709,640 12.9% 956,030 14.4% 34.7%
    Deposits 7,635,630   8,152,970   6.8%
    CASA 2,935,900 38.5% 3,873,476 47.5% 31.9%
    Term deposits 4,699,730 61.6% 4,279,494 52.5% -8.9%
    Credit/Deposit 72.0%   81.4%    

  • The bank's fee income showed a healthy growth of 29% YoY, bringing the fee to total income ratio to 23% in 1QFY11 from 18% in 1QFY10.

  • Additional hiring combined with additional contribution for pension as well as wage revision had led to the sharp uptick in the cost to income ratio of the bank in FY10. The ratio reduced from 57% in 1QFY10 to 44% in 1QFY11 due to write back of employee cost provisioning.

  • SBI did feel the heat on its NPAs in the past 12 months with gross NPAs rising to 3.1% of advances from 2.8% in 1QFY11. Net NPAs remained at 1.7%. Also, the bank does foresee some delinquency risks in its SME and retail loan books going forward. The provision coverage ratio stood at around 61% in 1QFY11 and the bank needs to bring it up to 70% by 1HFY11. SBI also revealed that of its Rs 168 bn of restructured assets about 10% have turned into NPAs so far.

What to expect?
At the current price of Rs 2,784, the stock is trading at 1.8 times our estimated FY13 standalone adjusted book value. SBIís balance sheet growth continues to remain ahead of the industry due to its widespread rural and semi-urban presence. Although we anticipate moderate growth in balance sheet in the near term, the bank, given its balance sheet size, penetration and the possibility of merger with associates remains a preferred play for the long term. Having said that most of the medium term upsides (ResearchPro subscribers can view latest updates here) seem to be already priced in. We may have to revise our estimates if the bank goes in for additional equity dilution this fiscal.

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