SBI Q3 FY21 performance was much better than expected, with Q3 FY21 gross slippages of just Rs 25 bn (<0.1% of loans) which is the best among banks under their coverage that have reported and now full-year slippages of 1.5% of loans is the lowest the bank would have seen in the last 15 years. SBI Share price closed at Rs 389.6, up Rs 6 or 1.55%.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

SBI retail asset quality has been impeccable (<50bps credit costs) over the last decade and with the end of the corporate credit cycle, SBI’s asset quality is finally delivering better asset quality outcomes vs even private banks. CLSA revised up their earnings by 15-26% and now expect ROEs of 14% by FY23CL. SBI has been a consistent market-share gainer over the last decade and now with a dual benign credit cycle from FY22CL, CLSA now expects SBI to rerate materially beyond 1x book. CLSA increased their price target to Rs 560 which implies 1.2x Mar-23 book and Rs166 / share of subsidiary, SBI’s asset quality is finally delivering better asset quality outcomes vs even private banks.

See Zee Business Live TV Streaming Below:

Strong asset-quality performance of State Bank of India:

Accounting for the Rs130 bn of recovery/upgrades, net slippages were even lower at Rs100bn (40bps of loans in 9M FY21). The bank has received Rs 180 bn of restructuring requests taking slippages and restructuring to Rs410bn in 9MFY21 which should now be within management guidance of Rs 600 bn. In CLSA’s report, Accounting for the Rs 130 bn of recovery/upgrades, net slippages were even lower at Rs 100 bn (40 bps of loans in 9M FY21). State Bank of India has received Rs 180 bn of restructuring requests taking slippages and restructuring to Rs 410 bn in 9M FY21 which should now be within management guidance of Rs 600 bn. Weak corporate credit cycles led to a spike in overall credit costs for SBI which should normalize now. CLSA thus expects credit costs to reduce to 110bps by FY23CL.

SBI’s Strong NII provision; large buffers built for employee provisioning:

SBI’s performance has been strong with NIMs in spite of high liquidity sustaining at 20bps higher than FY20 levels and highest NIMs in last six years. Through the last 1-2 years SBI has cut its SA rates by 100bps and still sustained CASA ratio of 45%.

CLSA believes SBI still remains a deep value opportunity and current rerating should continue as:

(1)    SBI is one of the biggest beneficiaries of the benign corporate credit cycle
(2)    Unlike PSU peers, SBI has gained loan/deposit market share in the last decade
(3)    ROAs of 90bps will be comparable to the FY10-14 cycle