Q3FY15 Result Review - State Bank of India : :HDFC Sec

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SBI reported an overall stable performance in Q3FY15 with lower NPAs being the key highlight for the quarter. GNPA and NNPA ratio have come down from 5.73% and 3.24% in Q3FY14 to 4.9% and 2.8% in Q3FY15. Sequentially too asset quality has remained stable. Fresh slippages during the quarter stood at Rs 7043 cr (vs Rs 7700 cr in Q2FY15). NII was up 9.2% y-o-y and 3.8% q-o-q to Rs 13776.6 cr. NIMs were largely stable at 3.5% while CASA stood at 42.58%. Cost to income ratio has come down from 54.7% to 51.1% y-o-y. Standalone net profits stood at Rs 2910.1 cr, up 30.2% y-o-y. Consolidated NII was up 8.6% y-o-y to Rs 18654.7 cr while Net Profits was up 34.9% y-o-y to Rs 3828.2 cr. Domestic NIMs stable at 3.5% SBI reported NII of Rs 13776.6 cr, up 9.2% y-o-y and 3.8% q-o-q. Interest income has gone up 10.6% y-o-y and 3.4% q-o-q to Rs 38546.2 cr while interest expenses have gone up 11.4% y-oy and 3.3% q-o-q to Rs 24769.5 cr. Domestic NIMs have remained stable at 3.5% in Q3FY15 while international NIMs have marginally come down from 1.5% to 1.2% y-o-y. Spreads have remained flattish at 4.25% q-o-q but up from 4.15% in Q3FY14

Asset Quality stable SBI reported decline in GNPAs and NNPAs by 8.6% y-o-y and 7.3% q-o-q to Rs 61991.5 cr and Rs 34468.7 cr respectively. Sequentially there was a marginal increase of 2.1% and 4.5% respectively. GNPAs and NNPAs as a percentage have remained almost flattish q-o-q at 4.9% and 2.8% respectively. Y-o-Y they have declined 83 bps and 44 bps from 5.73% and 3.24%. Consolidated GNPA as per the management stood at 5.02% and NNPA at 2.91% at end December 2014. Most of the slippages during the quarter were contributed by Mid Corporate and SME segments. In these segments, gross NPL ratio stood at 12% and 8% respectively and combined absolute NPLs were at 70% of the whole bank NPLs. Delinquencies in Large Corporate and Retail segments remained benign, also reflected in lower Gross NPLs of 0.5% and 1.2% respectively. Apart from lower slippages, substantial write‐offs (Rs 5096 cr) contributed towards containing the Gross NPL ratio at 4.9%. Fresh restructuring during the quarter was slightly higher than in the previous quarter at ~Rs 4100 cr. Consolidated restructured advances of the bank stood at Rs 72603 cr of which Rs 26061 cr were contributed by the subsidiaries. The group has exposure in Andhra at Rs200b and Telangana Rs35b, out of which Agri NPA are at Rs13b. On asset quality front, the bank could not sale bad assets to Asset Construction Companies (ARCs) in Q3FY15 due to change in regulations. However, the bank looks at higher ARCs sales in Q4FY15. Asset quality has been quite stable over the past 2 quarters. However outlook of the bank remains uncertain with few chunky accounts which may slip in the coming quarters if recovery does not happen. Restructuring pipeline is expected to be around Rs 55 bn for Q4FY15. Bank has planned mega sales of retail bad loans on 14 March 2015 with Rs 1200 cr of assets on sale including 100 residential properties. Bank also plans to have a monthly sale on bad loans on particular date and plans to have website for bad loans sale for enhanced participation. Bank is expecting more steps to be announced to resolve asset quality issues in the Union Budget 2015-16.

 Performance of Subsidiaries/Associates Net Profit of the five Associate Banks increased 19% y-o-y to Rs 2020 cr for nine months ending Q3FY15. Among its non banking subsidiaries, during the same period SBI Life Insurance posted a PAT of Rs 615 cr (up from Rs 541 cr y-o-y). SBI Capital Market posted a PAT of Rs 212 cr compared to Rs 153 cr y-o-y. SBI Funds Management posted a PAT of Rs 116 cr compared to 122 cr y-o-y while SBI Cards and Payment posted a profit of Rs 252 cr compared to Rs 232 cr y-o-y.  The shortfall on account of sale of assets to Reconstruction Companies (arrived at by deducting provision held as on March 31, 2014 from the outstanding less Sale consideration) amounting to Rs. 723.11 cr is being amortized over a period of two years, in terms of RBI Circular DBOD.BPBC.No.98/21.04.132/2013-14 dated February 26, 2014. Consequently, Rs.273.38 cr has been charged to the Profit & Loss Account for the nine months ended December 30, 2014. The amount unamortized is at Rs 467.4 cr.  Banks are required to make additional provision in respect of customers with Unhedged Foreign Currency Exposures (UFCE). Accordingly, the Bank has estimated a provision requirement of Rs. 307.8 cr. Out of the above, a sum of Rs. 230.9 cr has been charged to P&L account during December 2014 (being half of the requirement) as permitted by the RBI.  Mobile banking growth was 65% and growth in Internet banking was at 36%; POS traction gained with market share of 15%, Debit card spend market share is at 25%. In terms of POS, the Bank is connected with 17000 merchants with 0.4b transactions in a year. The Bank upgraded ATMs with 8000 talking ATMs, 800 solar ATMs, 600 bio metric ATMs. There are no plans to consolidate any of the subsidiaries in the current year Concerns  Asset quality is showing signs of stability but still at comparatively higher levels. Any further deterioration remains the main concern for the bank. It has one of the highest NPAs among large sized peers.  The bank lends in international market. The concerns of rising NPAs abroad could affect the global NPA ratios of SBI.  In order to boost its profits going ahead, the bank would need to reduce the cost to income ratio from the current levels failing which it could impact the margins of the bank. SBI already facing trouble with its asset quality needs to cut down its cost income ratio in order to improve its net margins going forward.  Rise in interest rates could require it to make provisions against its large investment book.  The largest shareholder i.e. the Central Government’s involvement could be contrary to the interests of minority shareholders.  NIMs of the bank have remained stable at 3.1%. The existing pressure in the margins of the whole banking sector could be a matter of concern for the bank and going ahead, it could be tough for the bank to maintain NIMs at high levels.  The deregulation of the interest rates by the RBI has led to strong competition as some of the private sector banks are offering higher rates on savings accounts. If SBI also raises interest rate on savings accounts, this could impact the margins of the bank.  The bank has a chunk of its exposure to few debt-burdened companies. The recovery from these and other sick companies is a prime matter of concern for the company. Conclusion State Bank of India is the largest public sector bank in the country and is virtually a proxy play for the Indian economy. It has maintained its leadership position across financial products and has aggressively expanded its deposit and advances book in the recent past thus gaining market share. SBI recorded 6.9% y-o-y growth in advances in Q3FY15. As on Q3FY15, bank had 16206 branches. SBI reported an overall stable performance in Q3FY15 with lower NPAs being the key highlight for the quarter. GNPA and NNPA ratio have come down from 5.73% and 3.24% in Q3FY14 to 4.9% and 2.8% in Q3FY15.



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http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011517