MOSL: STATE BANK OF INDIA (Buy)-High slippages and sharp drop in margins weigh on earnings-Sharp earnings cut
​State Bank of India: High slippages and sharp drop in margins weigh on earnings; Sharp earnings cut
(SBIN IN, Mkt Cap USD37.8b, CMP INR281, TP INR341, 21% Upside, Buy)
- SBIN’s PAT increased 5.4x YoY to INR20b, but missed our estimate by 34%. A sharp rise in slippages from non-corporate credit, impact of demon, and loan waiver led to high interest reversal (INR13.6b, 20bp margins impact) and miss of 11% on NII. Fee income/SA growth of 16/23% YoY and opex control (+4% YoY) were the key positives. Total pool of gross stress loans stood at INR2.63t (14.6% of loans), on which the bank carries provisions of ~32%.
- Slippages stayed elevated at INR262.5b (INR300.6b, including debit to existing accounts), with corporate slippages (INR84b) contributing 32% of overall slippages. 95% (INR79.8b) of corporate slippages (INR83.6b) were contributed by the watch-list. Two thirds of the slippages were driven by Agri, Retail and SME loans (impacted by demon and loan waiver), and management expects one third of the current quarter slippages to be recovered in rest of FY18. Despite high slippages, absolute GNPA/NNPA increased just 6%/11% QoQ to 5.97% of loans v/s 5.2% in 4Q, helped by elevated write-offs of INR131.8b.
- Corporate watch-list declined to INR244.4b from INR324.7b at end-4Q, led by heavy slippages. Power (48% of watch-list), Steel (12%) and Construction (10%) remain key monitorables here. Management expects large part of the corporate slippages to emerge from watch-list.
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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