State Bank of India: Key risks: JPMorgan

Visit http://indiaer.blogspot.com/ for complete details �� ��



State Bank of India
Asset quality has been a concern. In 2Q11, gross incremental delinquency
worsened, up 8% q/q and rising from 2.5% to 2.6% of loans. This drove NPL
provisions up 24% q/q to Rs 21bn, implying a credit cost of 1.3%. There were some
one-offs (we ignore the SBIndore numbers here) but flows of fresh NPLs, both from
restructured and the standard book, continues to be worryingly elevated. Also,
delinquency has been from across segments – it is difficult to see where the
improvement will come from.


Cost issues have been a drag. This has partially been driven by one-offs on gratuity
– but not entirely. We do believe that SBI’s strong revenue performance has been
underpinned by branch expansion, so costs will remain somewhat elevated going
forward. It is not a major area of concern, but we think SBI's cost base is higher than
the Street thinks.

CASA migration could put NIMs under pressure. A spike in interest rates could
see CASA ratios come under pressure. The problem would be industrywide, but SBI
would be asymmetrically affected, given its acquisition strategy is highly branch-led
and, we think, a little more vulnerable than the private sector banks.