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MOSL: STATE BANK OF INDIA (Buy)-Operating performance on track; asset quality outlook steady

State Bank of India: Operating performance on track; asset quality outlook steady

(SBIN IN, Mkt Cap USD39.8b, CMP INR319, TP INR425, 33% Upside, Buy)

 

DTA reversal impacts earnings

• SBIN reported a strong quarter, supported by NCLT recoveries, improving fee income trends and controlled opex driving healthy PPoP growth. However, PAT came in lower than expected owing to one-time DTA hit, as the bank exercised the option of lower tax rate. Further, slippage trajectory remains elevated, led by one stressed HFC account and RBI divergences.
• We slightly cut our EPS estimate for FY21/22 by 3%/5% as we moderate our loan growth assumption to reflect economic slowdown. Maintain Buy. 

Asset quality ratios improve despite elevated slippages

• SBIN reported PAT of INR55.8b (lower than estimate) in 3QFY20, primary due to one-time tax-adjustment hit of INR13.3b, as the bank exercised the option of lower tax rate. NII grew 22% YoY/13% QoQ to INR278b (+5% YoY adjusted for one-off gain of INR40b).
• Other income grew 13% YoY, led by treasury gains and an improvement in core fees (+19% YoY). Accordingly, PPoP grew 44% YoY (18% beat).
• Loan growth stood at 7.4% YoY (2.5% QoQ), driven by retail loans (+17.5% YoY) and international loans (+16.9% YoY), while corporate loan growth remained muted (-0.5% YoY) due to lower loan utilization limits. Deposit increased 10% YoY, while domestic CASA mix declined ~40bp QoQ to 44.7%.
• Fresh slippages increased to INR165b (3.9% annualized), primarily driven by one stressed HFC account (INR70b) and slippages from RBI divergence. Overall, the recovery in Essar Steel and a few other accounts facilitated 1%/3% QoQ decline in GNPL/NNPL. PCR improved ~60bp QoQ to 63.5% (81.7% incl. TWO). Provisioning expenses stood at INR72.5b (higher than estimate), led by provisions toward stressed HFC, taking total PCR to 29%.