MOSL: STATE BANK OF INDIA (Buy)-Asset quality staging a turnaround, reiterate Buy
​State Bank of India: Asset quality staging a turnaround, reiterate Buy
(SBIN IN, Mkt Cap USD32.8b, CMP INR333, TP INR415, 25% Upside, Buy)
- SBIN reported a strong quarter - fresh slippages declined to INR106.27b (INR300.6b in 1QFY18), while healthy provisions (enabled by SBI Life stake sale gains) helped improve PCR by 470bp QoQ. The watch-list declined 13% QoQ to INR213b, while net NPA and restructured assets declined 83bp QoQ to 7.29%.
- PPoP grew 13% QoQ, led by a healthy pick-up in NII and controlled opex. Cost/core income ratio declined 153bp QoQ to 56%, led by a 7% YoY decline in employee expenses, as SBIN continues to see a net reduction in its employee base. The bank significantly stepped up provisioning expenses (+114% QoQ), leading to modest PAT of INR15.82b (-21% QoQ).
- Loan growth was muted due to continued moderation in large- and mid-corporates, even as retail advances grew 3%/13% QoQ/YoY. Margins improved 9bp QoQ to 2.59%, aided by a reduction in deposit cost after SBI took the lead in cutting SA rate to 3.5%. SA growth was healthy (+2.6% QoQ growth v/s +2% QoQ in 1QFY18).
- While corporate slippages may remain volatile, the relatively low watch-list (1.2% of loans) and restructured assets (1.9% of loans) provide comfort on future slippage trajectory. The current quarter has addressed the concerns about management transition, and we look forward to speedy recovery in SBI's asset quality, particularly as the resolution of NCLT cases makes further progress, while recapitalization of PSU banks via recap bonds enable the bank to further cleanse its books.
State Bank of India provides a range of products and services to personal, commercial enterprises, large corporates, public bodies and institutional customers. Its segments include Treasury, which includes the entire investment portfolio and trading in foreign exchange contracts and derivative contracts; Corporate/Wholesale Banking, which comprises the lending activities of Corporate Accounts Group, Mid Corporate Accounts Group and Stressed Assets Management Group; Retail Banking, which comprises branches in National Banking Group, which primarily includes Personal Banking activities, including lending activities to corporate customers having banking relations with branches in the National Banking Group, and Other Banking Business, which includes the operations of all the Non-Banking Subsidiaries/Joint Ventures other than SBI Life Insurance Co. Ltd. and SBI General Insurance Co. Ltd. The Company had approximately 22,500 branches and 58,000 ATMs.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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