SBI (NS: SBI ) jumped over +20% in May and +1% in June, scaled lifetime high 441.90 on the mixed report card (Q4FY21), but better than expected asset quality and guidance even amid COVID disruptions. In Q4FY21, SBI reported a gross interest income of around Rs. 40.22B from core lending operations against Rs. 43.74B sequentially (-8.06%) and Rs.42.58B yearly (-5.88%). But higher TSY, RBI, and other investment income helped SBI to report a decent overall net interest income (NII) for around Rs. 27.07B in Q4FY21 against Rs. 28.82B sequentially (-6.08%) and Rs.26.77B (+1.10%).
In any way, in Q4FY21, SBI’s domestic credit growth was supported by higher household loans (unsecured) as most of the loans were offered to PSU/government employees. Also, SBI is now offering most of the corporate loans to only blue-chip private or PSU companies. Overall, personal loan portfolio was at around Rs.8.7T, and almost 58% of that belongs to home loans; around 70% of personal/household loans are secured (home/auto/gold), while unsecured loans are mainly given to ‘secured’ people (PSU employees or senior-level employees of blue-chip private companies).
Almost 40% of the domestic advance of SBI now belongs to Indian households. As per the latest available data, SBI, the largest lender in India, now have an overall market share of around 35% in-home and 32% in auto loans. The total corporate loan was around Rs.8.19T in Q4FY21, which declined -3.02% from Q4FY20 levels, while agri loan at Rs.2.14T (+3.92%), and SME loan at Rs.2.79T (+4.24%); the overall business loan was around Rs.13.12T.
Over the years, SBI as-well-as most other PSU Banks (PSBS) are increasingly dependent on TSY income, mostly interest earned from risk-free GSECs (Indian bonds) Government-owned PSBS is the biggest holder of GSECs (issued by the Federal government to finance budget/fiscal deficits). Although SBI has improved its share of core interest income from around 50% in FY17 to 65% in FY21, in Q4FY21, it was slipped to 62%. Moreover, without TSY/investment income, core EBITDA is consistently negative for the last 4-quarters, although improving.
SBI is reporting around 5% of its advance as gross NPA. But looking at Real Street, it’s hard to believe that only 5% of the loan has turned into NPA/NPL even amid COVID disruptions. Normally, for any PSBS, at least 15-25% of loans are usually under NPA, if truly recognized and not covered/hidden under additional loans within the same bank or with other banks. Typically, the amount of incremental loan growth in a year for a PSB follows a nominal core interest figure. For example, in FY21, SBI incremental nominal loan growth was around Rs.1.24T against Rs.1.71T core interest ‘paid’ by borrowers.
SBI is now a PSU heavy lender and thus asset quality is improving quite dramatically even amid COVID disruptions as government-backed PSUs are the safest borrowers. SBI is now giving thrust on techs (algo) for its lending decision in a centralized rule-based manner (like private lenders). This is a significant step, leading to re-rating of the bank unlike old days of manipulated/fraudulent lending culture at branch levels. SBI is now also steadily improving its fee-based income (like its private peers).
In Q4FY21, SBI holds around 44% GSECs (Federal debts), 13% SDLs (state debts), 24% corporate bonds, CP 10%, and others 9%; i.e. almost 57% of AFS book holds government debts; rest high-quality corporate debts, yielding +6.32% vs 7.19% (y/y); lower yield due to lower 10Y bond yield (benchmark). But despite various cost control measures, especially on the ‘overhead’ front, total operating costs (including interest expense) were higher at Q4FY21 (Rs.23.59B vs Rs.20.74B sequentially and Rs.20.38B yearly).
Eventually, core operating income (EBTDA) came around Rs.3.48B against Rs.8.01B (q/q) and Rs.6.39B (y/y). But due to higher ‘other income’ (fees, stake sale, trading/FX, and recovery of NPA/write off loans) at Rs.16.23B (vs 9.25B sequentially and 13.35B yearly). EBITDA (before NPA provisions) was reported at around Rs.19.70B vs 17.33B (+13.66%) sequentially and 19.74T (-0.18%). In Q4FY21, provisions and contingencies was declared around Rs.11.05B against 10.34B (q/q) and 13.50B.
Ultimately, Q4FY21 operating EPS (EBITDA/Share) was calculated at Rs.22.07 against 19.42 (q/q) and 22.11 (y/y). Segment-wise, corporate PBT was in green (Rs.51B) after 4-years of consecutive losses, while retail PBT slumped -48% (y/y) due to COVID-related provisions. The Q4FY21 credit costs were declared at 1.12%; net NPA was around Rs.36.81B against 29.03B (q/q) and 51.88B (y/y). In Q4FY21, additional COVID-related provisions (non-NPA/standard assets and out of PCR) were made for Rs.25.38B. In Treasury (TSY), SBI reported PBT of Rs.171B (led by gains from the stake sale of SBI Life), which contributed around 54% to the total segmental profits.
Highlights of Q4FY21 analyst concall:
· FY21 ROE at 10% despite COVID disruptions; long term ROE target 15% in a sustainable manner
· Overall, COVID related compound interest reversal was around Rs.3B
· Aggregate NPAs have come down; no significant impact of collection efficiency so far in Q1FY22 despite COVID tsunami; stress on collection efficiency and close follow-ups
· Upbeat prospect for unsecured personal loans (express credit) as most of the borrowers are PSU employees, having salary account with the bank
· Higher employee costs would be transient due to arrears payments
· Not expecting any significant further cuts in deposit rates
· Slow corporate credit growth due to general COVID recession (lack of demand) and corporates are now preferring market for raising funds at a cheaper rate (through the bond, equity market)
· COVID loan restructuring is an option for SMEs, but that will eventually affect their credit rating
· Overall NPL recovery around Rs.17B; the bank is taking compromise settlement routes to settle legacy NPA/NPL accounts
· Corporate net NPA around Rs.8B; almost 90% covered; no great concern about retail NPA, but agri and MSME need to be watched
· Will guide FY22 NPA provisions only after 4-6 weeks or at Q2FY22 (after assessing the impact of COVID 2nd wave)
· Overall credit costs guidance around 2%, but aim to keep it around 1.12% as in Q4FY21
· Open to continuous deleveraging depending upon the evolution of the capital market
· ECLGS (COVID) loan book created around Rs.25B
· Upbeat about retail loan growth in the coming days
· Not sure about whether maximum slippages in Q4FY21 was from corporates or not
· Higher agri NPA due to COVID disruptions and lockdowns/mobility (bank personnel not able to reach rural farmers in time for renewal etc); also there is some base effect for agri loan waiver issues
· Out of Rs.6.56B corporate NPA, Rs.3.65B technical in nature and the bank hopes to recover another ‘chunky’ account for around $1B; thus Rs.4.5B will move into standard account in FY22
Fair valuation: SBI (517-595 by FY: 22-23)
The FY21 operating EPS was calculated at 78.45 against 69.38 for FY20 (+13.08%). As per recent run rates and various pros & cons, SBI’s operating EPS may grow around +15% CAGR over the next few years, and assuming an average PE of 4, the FY23 median/fair valuation may be around 450; FY24 fair valuation 517 and FY25 fair valuation around 595. As the market will now discount FY24-25 earnings, SBI should scale around 517-595 by FY: 22-23. Increasing digital banking to reach wealthy retail clients (NRIs, locals), strict control over asset quality, higher recoveries (helped by compromise settlement and NCLT), adequate provisions (incrementally lower slippages), prudent cost control, better productivity, increasing deleveraging (SBI MF/LI/GI/Card; higher SOTP valuations) may help.
Technical outlook: SBI
Technically, whatever may be the narrative, SBI now has to sustain over 445-455 levels for any further rally towards 520-540-595 levels; otherwise sustaining below 442-428 zones, may correct towards 341-321 levels, which should provide a good buying area.
Financial analysis: SBI (Standalone)
SBI PL A/C-QLY
SBI PL A/C-YLY
SBI NPA/OTHER RATIOS
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.
follow him he is greatLike 0