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Focusing on quality of growth
Presenting at CLSA Corporate Access Days, Mr. Diwakar Gupta (MD &
CFO) and Mr. C Ramnath (CGM, Financial Control), highlighted that
for FY12 bank targets ~18% growth in loans with focus on quality
lending and 20bps YoY expansion in margins. Management expects
asset quality pressures to moderate going forward and increased
focus on recoveries should help to keep gross NPAs (absolute level)
flat during FY12. Management expects capital raising to be in 2HFY12
and believes that SBI can deliver a healthy growth in FY12 by raising
Tier II capital. Key management comments are highlighted below:
Loan growth and margins: Management is targeting loan growth of ~18%
over FY12 and expects NIM to expand by 20bps YoY to 3.5%. During 4QFY11,
NIMs compressed by 56bps due to a combination of rise in deposit costs,
reversal of income on NPAs, provision of interest cost on provident fund and a
higher base of 3Q that included interest on income tax refund. Recent hike in
lending rates should help to improve margins as loans reprice faster.
Outlook on asset quality: During FY11, SBI witnessed high slippages with
delinquency ratio rising to 2.9% of last year’s loans. Management believes
that asset quality pressures should moderate going forward and the bank has
increased focus on recoveries- it recently appointed a Dy. MD to oversee the
stressed asset portfolio. For FY12, SBI targets to keep the amount of gross
NPA flat YoY (i.e slippages will be offset by recoveries, upgrades & write-offs).
We however, are a bit cautious and factor a 15% YoY growth in gross NPAs.
NPL provisioning: SBI will follow provisioning norms as required by RBI, but
provisioning is likely to be high in 1HFY12 as SBI makes provision for counter
cyclical buffers (Rs11bn), hike in NPL provision rates (Rs5bn) and provision
on restructured loans (Rs5bn).
Exposure to key sectors: Some sectors that are facing stress are textiles,
commercial real estate (3% of portfolio), engineering and steel. Exposure to
key sectors: infrastructure (Rs1tn), airlines (Rs45bn) and telecom (Rs326bn),
of which exposure to corporate groups facing investigation is Rs15bn.
Capital raising: Management expects that rights issue is likely in 2HFY12.
While tier I CAR is low at 7.8%, SBI can leverage on Tier II capital to deliver
18-20% growth in FY12.
Pension provisions: SBI will provide more proactively for pension liabilities
for the next wage settlement. It plans to charge pension provisions through
P&L over FY13-18 rather than deduct it from reserves in FY18.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Focusing on quality of growth
Presenting at CLSA Corporate Access Days, Mr. Diwakar Gupta (MD &
CFO) and Mr. C Ramnath (CGM, Financial Control), highlighted that
for FY12 bank targets ~18% growth in loans with focus on quality
lending and 20bps YoY expansion in margins. Management expects
asset quality pressures to moderate going forward and increased
focus on recoveries should help to keep gross NPAs (absolute level)
flat during FY12. Management expects capital raising to be in 2HFY12
and believes that SBI can deliver a healthy growth in FY12 by raising
Tier II capital. Key management comments are highlighted below:
Loan growth and margins: Management is targeting loan growth of ~18%
over FY12 and expects NIM to expand by 20bps YoY to 3.5%. During 4QFY11,
NIMs compressed by 56bps due to a combination of rise in deposit costs,
reversal of income on NPAs, provision of interest cost on provident fund and a
higher base of 3Q that included interest on income tax refund. Recent hike in
lending rates should help to improve margins as loans reprice faster.
Outlook on asset quality: During FY11, SBI witnessed high slippages with
delinquency ratio rising to 2.9% of last year’s loans. Management believes
that asset quality pressures should moderate going forward and the bank has
increased focus on recoveries- it recently appointed a Dy. MD to oversee the
stressed asset portfolio. For FY12, SBI targets to keep the amount of gross
NPA flat YoY (i.e slippages will be offset by recoveries, upgrades & write-offs).
We however, are a bit cautious and factor a 15% YoY growth in gross NPAs.
NPL provisioning: SBI will follow provisioning norms as required by RBI, but
provisioning is likely to be high in 1HFY12 as SBI makes provision for counter
cyclical buffers (Rs11bn), hike in NPL provision rates (Rs5bn) and provision
on restructured loans (Rs5bn).
Exposure to key sectors: Some sectors that are facing stress are textiles,
commercial real estate (3% of portfolio), engineering and steel. Exposure to
key sectors: infrastructure (Rs1tn), airlines (Rs45bn) and telecom (Rs326bn),
of which exposure to corporate groups facing investigation is Rs15bn.
Capital raising: Management expects that rights issue is likely in 2HFY12.
While tier I CAR is low at 7.8%, SBI can leverage on Tier II capital to deliver
18-20% growth in FY12.
Pension provisions: SBI will provide more proactively for pension liabilities
for the next wage settlement. It plans to charge pension provisions through
P&L over FY13-18 rather than deduct it from reserves in FY18.
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