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India Equity Research Reports, IPO and Stock News
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● Due to slowdown in fees, high opex, a large treasury hit and high
(49%) tax rate, SBI’s 1Q earnings were 40% below estimates
despite NIMs at 3.6%(+44 bp YoY) 20 bp over forecast.
● Deposit costs in 1Q rose only 40 bp to 5.66% despite the savings
rate increase, while lending yields rose 87 bp (on back of 100 bp
base rate increase). Post the recent 50 bp lending rate hike, SBI
may maintain these NIM levels near term. However, with deposit
re-pricing headwinds, these NIM levels appear unsustainable over
full year even as its deposit mix continues to be favourable and it
has moderated loan growth to 16-18%.
● Asset quality continues to be vulnerable (slippages in 1Q elevated
at 3.3% of loans), as in addition to agri and mid-corporate stress,
the bank witnessed slippage from infrastructure book as well.
● While we expect profit to improve from 1Q lows as the bulk of
catch-up provisioning is done, with pressure on asset quality,
fees, high opex and tax rates, ROA continues to be under
pressure. With Tier 1 at 7.6% and at 1.4x book we don't see rerating.
Maintain NEUTRAL.
NIMs surprise profitability, CASA ratio continues to be robust
Loan growth was in line with our estimates at 18% YoY. Deposit
growth (17%) was also healthy, with the savings deposit base
continuing to grow robustly (21%) and CASA ratio sustained at ~48%.
Driven by healthy deposit mix and re-pricing benefits of its legacy high
cost deposits, deposit costs were up only 40 bp despite the savings
bank rate increase. Lending yields rose 87 bp due to a 100 bp base
rate increase undertaken. The 50 bp lending rate hike undertaken
recently will help the bank maintain these levels of NIMs in 2Q,
however with current deposit costs at least 75 bp lower than its
incremental deposit costs, these NIM levels may be unsustainable
over the full year.
ROA continues to be under-pressure
Non-interest income, however, was weaker (-4%YoY) and core fees
(+11%) have started to lag asset growth. Tax rate was also high at
49% as pension provisions are not tax-deductible (the bank is not
creating deferred tax assets). Management has guided that the tax
rate is likely to be ~40%. With opex also high (inflation + employee
base increase), the drags on profitability are reflected by the bank
generating just 0.5% ROA and 9.5% ROE even as NIMs during the
quarter were higher than sustainable levels and capital adequacy thin
(Tier 1 of 7.6%)
Asset quality pressures continue
Gross slippages in 1Q were high US$1.4 bn (3.3% of loans
annualised) and credit costs high as expected (1.5%). Outstanding
restricted loans are at 4.5% of loans and the bank now only needs
Rs5.5 bn of additional provisions to meet RBI norms. However,
management indicated that SME and mid-corporate asset quality
remains vulnerable following the rate increases. Moreover, in addition
to agri and mid-corporate stress witnessed in the past few quarters, in
1Q, the bank saw slippage from infrastructure as well.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Due to slowdown in fees, high opex, a large treasury hit and high
(49%) tax rate, SBI’s 1Q earnings were 40% below estimates
despite NIMs at 3.6%(+44 bp YoY) 20 bp over forecast.
● Deposit costs in 1Q rose only 40 bp to 5.66% despite the savings
rate increase, while lending yields rose 87 bp (on back of 100 bp
base rate increase). Post the recent 50 bp lending rate hike, SBI
may maintain these NIM levels near term. However, with deposit
re-pricing headwinds, these NIM levels appear unsustainable over
full year even as its deposit mix continues to be favourable and it
has moderated loan growth to 16-18%.
● Asset quality continues to be vulnerable (slippages in 1Q elevated
at 3.3% of loans), as in addition to agri and mid-corporate stress,
the bank witnessed slippage from infrastructure book as well.
● While we expect profit to improve from 1Q lows as the bulk of
catch-up provisioning is done, with pressure on asset quality,
fees, high opex and tax rates, ROA continues to be under
pressure. With Tier 1 at 7.6% and at 1.4x book we don't see rerating.
Maintain NEUTRAL.
NIMs surprise profitability, CASA ratio continues to be robust
Loan growth was in line with our estimates at 18% YoY. Deposit
growth (17%) was also healthy, with the savings deposit base
continuing to grow robustly (21%) and CASA ratio sustained at ~48%.
Driven by healthy deposit mix and re-pricing benefits of its legacy high
cost deposits, deposit costs were up only 40 bp despite the savings
bank rate increase. Lending yields rose 87 bp due to a 100 bp base
rate increase undertaken. The 50 bp lending rate hike undertaken
recently will help the bank maintain these levels of NIMs in 2Q,
however with current deposit costs at least 75 bp lower than its
incremental deposit costs, these NIM levels may be unsustainable
over the full year.
ROA continues to be under-pressure
Non-interest income, however, was weaker (-4%YoY) and core fees
(+11%) have started to lag asset growth. Tax rate was also high at
49% as pension provisions are not tax-deductible (the bank is not
creating deferred tax assets). Management has guided that the tax
rate is likely to be ~40%. With opex also high (inflation + employee
base increase), the drags on profitability are reflected by the bank
generating just 0.5% ROA and 9.5% ROE even as NIMs during the
quarter were higher than sustainable levels and capital adequacy thin
(Tier 1 of 7.6%)
Asset quality pressures continue
Gross slippages in 1Q were high US$1.4 bn (3.3% of loans
annualised) and credit costs high as expected (1.5%). Outstanding
restricted loans are at 4.5% of loans and the bank now only needs
Rs5.5 bn of additional provisions to meet RBI norms. However,
management indicated that SME and mid-corporate asset quality
remains vulnerable following the rate increases. Moreover, in addition
to agri and mid-corporate stress witnessed in the past few quarters, in
1Q, the bank saw slippage from infrastructure as well.
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