State Bank of India::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Focus to be on quality growth rather than market share
 The management is willing to sacrifice market share to protect its margins. It has
increased its base rate by ~200bp over the last 8 months to 10%.
 While it estimates systemic credit growth to be 18%, it remains confident of achieving
16-18% loan growth for itself in FY12.
Maintains NIM guidance of 3.5% for FY12
 In 1QFY12 SBI reported 55bp improvement in margin driven by (1) higher CASA
share coupled with re-pricing of high cost deposits and (2) increase in lending rate.
 Further INR350b of high cost deposits (9.5-10.5% raised in FY08) is likely to come
for re-pricing which will help the bank to contain cost of funds.
 However in 2HFY12 with bulk of re-pricing behind management expects margins to
moderate, but remains confident of maintaining NIM at 3.5%+ for FY12.
Asset quality a key focus area for the bank
 Asset quality remains a concern, with slippages at elevated levels. SBI has reiterated
its focus on improving risk management practices.
 Stress in the corporate segment has reduced considerably. However, the trend in
SME and retail loans needs to be watched.
 Higher upgradations and recoveries in 2HFY12 will lead to improvement in asset
quality and will help to contain NNPA below 1.5% in FY12.
One-off provisions behind; expect provisions to decline
 With one-off provisions for change in NPA guidelines and restructured loans behind
(one-off provisions that remain to be made are INR5.5b), provisions are likely to
decline substantially.
 Further, increase in pension liability was a one-off and is not likely to recur. The
impact of pension liability was larger, as the wage hike was implemented with
retrospective effect from November 2007. The bank is now likely to provide for such
hikes on an ongoing basis - at least partially. Hence, a negative surprise on this
count is unlikely.
Other highlights
 Government to infuse capital and expects to receive the same in FY12.
 For FY12, SBI expects fees to grow slower than asset growth.
Valuation and view
As SBI regains investor confidence through stable margins at 3.5%+ and improvement
in asset quality (key catalyst in the rest of FY12), valuations could improve from current
levels of 1.2x FY13E consolidated BV. Buy.