SBI management meet – outlook positive :: Emkay

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SBI management meet – outlook positive

We recently met with management of SBI. Following are key takeaways from the meeting

NPAs accretion to slow down

The restructured standard advances, agriculture advances and retail advances were key driver of the slippages in M9FY11. The slippages in the restructured advances portfolio were 15.89% till M9FY11.

For FY12E, the slippage rate could come down to 1.6-1.8% compared with 2% in FY11E. The slippages from restructured portfolio and agriculture advances have slowed down sharply. Recoveries and upgradations are happening at pace of Rs20-25bn per quarter. The new chairman has highlighted that containing NPAs will be key priority in future.

Pension liabilities at Rs80-100bn

Driven by salary revisions in the ninth bipartite agreement, the pension liabilities could be Rs80-100bn. SBI has requested RBI to allow it to amortise the same over period of five years. However, there is one caveat here, SBI’s liabilities are AS-15 liabilities unlike other banks where it has  come up because of the second option.

However, we like to highlight here that SBI’s pension liabilities as % of its FY12E adjusted net worth are still low at 8% compared with 8-18% for other banks.

NIMs may be maintained at 3.4%

The NIMs for FY12E could be maintained at 3.4% due to two reasons: (1) SBI’s base rate at 8.25% is still ~75bps lower than other banks which can be raised and (2) SBI had raised a large amount of deposits at 10.5% with tenure of 100 days in Sep-Dec 2008. These deposits are likely to come up for renewal in H2CY11. The peak rate  offered by SBI right now is 9.25%

Teaser rate loan provisions

SBI is still in talks with the RBI though no conclusion has been reached. The teaser rate loan portfolio is at about Rs300bn. If SBI has to provide on these loans, it will entail provisions of Rs4.8bn

Valuation and view

At the CMP, the stock is quoting at 2.1x/1.8x consolidated banking FY11E/FY12E ABV. Excluding the value of insurance and other businesses, the valuations are attractive at 2.0x/1.6x consolidated banking FY11E/FY12E ABV. We maintain our ACCUMULATE rating with TP of Rs3,000.