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State Bank of India
RBS China India Access-Day 2
We hosted SBI among other companies at the RBS China India Access meet in
London. Following are the key highlights of the same.
Improvement in margins in FY12
! Net interest margins had improved 66bps yoy to 3.32% in FY11 (down about 50bps qoq to
3.07% in 4QFY11). Going forward, the management guides for yoy improvement in margins
to about 3.5% in FY12.
! According to management, the margin improvement will largely be driven by better yields on
asset repricing post the recent hikes in the base rate. The management also stated that the
bank is increasingly focusing on term loans compared to working capital loans.
! Further, the management indicated that the incremental spreads in the recent months appear
better which provides comfort.
! The management also stated that SBI is not a material borrower in the wholesale market (3
month CD rate is about 9.5%) as the bank is seeing an increase in deposit mobilisation due to
a recent hike in its short-term deposit rates.
! Note, we have factored in largely stable margins on yoy basis in our estimates.
Lower slippages and credit costs in FY12, focus on asset quality
! The management guided that slippages will decline yoy in FY12 (260bp of average loans in
FY11). Consequently, it expects the provision charge for bad loans to come down yoy in
FY12 (about 130bps of average loans in FY11)
! The management reiterated its focus on improving asset quality. It said that the bank has
added systems to identify stress in the initial stage of defaults.
! Note we have factored in largely stable credit costs on yoy basis in our estimate
Pension liability
! SBI's pension liability (as per the ninth Bipartite settlement) was about Rs117bn as of March
2011. After considering the existing provision on books of about Rs 13bn the additional
pension cost in respect of the liabilities of earlier years (2007-2010) due to wage revision
amounting to Rs 79.3bn was charged to reserves in accordance with the RBI dispensation.
The balance Rs 24.7bn was charged to profit and loss account in FY11.
! The management stated that the bank, as a prudential measure, has not created deferred tax
asset on the preceding provision.
! The management further stated that the bank finds it difficult to estimate/revalue the pension
liability as the pension liability calculation in the case of SBI is not directly correlated/delinked
to the normal wage hike (as per a bipartite settlement). However, it guided that the bank
henceforth will be forthcoming in making adequate provisions for such liabilities.
Loan growth and capital raising
! The management guides for loan growth of about 18-19% at SBI in FY12 (19.8% yoy in
FY11)
! The management expects capital raising to happen in FY12 (tier I was 7.77% as of March
2011)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
State Bank of India
RBS China India Access-Day 2
We hosted SBI among other companies at the RBS China India Access meet in
London. Following are the key highlights of the same.
Improvement in margins in FY12
! Net interest margins had improved 66bps yoy to 3.32% in FY11 (down about 50bps qoq to
3.07% in 4QFY11). Going forward, the management guides for yoy improvement in margins
to about 3.5% in FY12.
! According to management, the margin improvement will largely be driven by better yields on
asset repricing post the recent hikes in the base rate. The management also stated that the
bank is increasingly focusing on term loans compared to working capital loans.
! Further, the management indicated that the incremental spreads in the recent months appear
better which provides comfort.
! The management also stated that SBI is not a material borrower in the wholesale market (3
month CD rate is about 9.5%) as the bank is seeing an increase in deposit mobilisation due to
a recent hike in its short-term deposit rates.
! Note, we have factored in largely stable margins on yoy basis in our estimates.
Lower slippages and credit costs in FY12, focus on asset quality
! The management guided that slippages will decline yoy in FY12 (260bp of average loans in
FY11). Consequently, it expects the provision charge for bad loans to come down yoy in
FY12 (about 130bps of average loans in FY11)
! The management reiterated its focus on improving asset quality. It said that the bank has
added systems to identify stress in the initial stage of defaults.
! Note we have factored in largely stable credit costs on yoy basis in our estimate
Pension liability
! SBI's pension liability (as per the ninth Bipartite settlement) was about Rs117bn as of March
2011. After considering the existing provision on books of about Rs 13bn the additional
pension cost in respect of the liabilities of earlier years (2007-2010) due to wage revision
amounting to Rs 79.3bn was charged to reserves in accordance with the RBI dispensation.
The balance Rs 24.7bn was charged to profit and loss account in FY11.
! The management stated that the bank, as a prudential measure, has not created deferred tax
asset on the preceding provision.
! The management further stated that the bank finds it difficult to estimate/revalue the pension
liability as the pension liability calculation in the case of SBI is not directly correlated/delinked
to the normal wage hike (as per a bipartite settlement). However, it guided that the bank
henceforth will be forthcoming in making adequate provisions for such liabilities.
Loan growth and capital raising
! The management guides for loan growth of about 18-19% at SBI in FY12 (19.8% yoy in
FY11)
! The management expects capital raising to happen in FY12 (tier I was 7.77% as of March
2011)
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