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Earnings Call Summary - Q2FY25

State Bank of India Q2FY25 Earnings Call Analysis

1. Summary of Quarterly Results

  • Profitability

    • Net Profit: ₹18,331 crore, up 28% YoY.
    • Return on Assets (ROA): Greater than 1%.
    • Return on Equity (ROE): Greater than 20% for H1FY25.

  • Deposits

    • Total Deposits: ₹51.17 trillion, surpassing the ₹50 trillion milestone, up 9.13% YoY.
      • Term Deposits: Up 12.51% YoY.
      • Current Account Deposits: Up 10% YoY.
      • CASA Ratio: Maintained above 40%.

  • Credit

    • Overall Credit Growth: 14.93% YoY.
      • Domestic Advances: Up 15.55% YoY, broken down as:
        • Corporates: 18% growth.
        • Agriculture: 17% growth.
        • SME: 17% growth.
        • Retail: 12% growth.
      • Foreign Office Advances: Up 11.56% YoY.
    • Credit Quality
      • Slippage Ratio: 0.51% (Retail: 0.31%).
      • Credit Cost: 0.38%.
      • Provision Coverage Ratio (PCR): 75.66%.
      • Net NPA Ratio: Improved by 11 basis points YoY, standing at 0.53%.

  • Liquidity and Capitalization

    • Liquidity Coverage Ratio: 129% as of September 30.
    • Capital Adequacy Ratio (CAR):
      • Without Profit Ploughback: 13.76%.
      • Including H1FY25 Profits: 14.79%.

  • Digital Initiatives

    • YONO Registered Customers: Over 8 crore.
    • Digital Account Openings: 61% of regular savings accounts opened through YONO in Q2FY25.

  • Asset Quality

    • RORWA (Return on Risk Weighted Assets): 2.07%.
    • Market Share:
      • Savings Bank Deposits: 26.51% as of September 2024.
      • Advances: 19% market share as of September 2024 with a 5-year CAGR of 11.76%.

2. Management Guidance and Outlook

  • Credit Growth

    • Guidance: 14% - 16% for credit growth in FY25.
    • Outlook: Confident in achieving and potentially exceeding this target, supported by a strong pipeline of ₹6 trillion in corporate loans.

  • Deposit Growth

    • Guidance: Targeting 10% - 10.5% deposit growth for FY25.
    • Outlook: Expecting to achieve double-digit growth in current accounts and term deposits, leveraging the ₹50 trillion deposit base.

  • Asset Quality

    • Slippage Ratio: Aiming to maintain below 0.60%.
    • Credit Cost: Targeting below 0.40%.
    • Provision Coverage Ratio (PCR): Maintaining above 75%, indicating robust provisioning.

  • Return Metrics

    • ROA: Maintaining at least 1%.
    • ROE: Aiming to consistently achieve over 15% throughout business cycles.

  • Digital and Subsidiaries

    • Continued focus on digital banking initiatives, particularly expanding YONO's reach.
    • Sustained performance and value creation from subsidiaries, with no immediate changes anticipated.

3. Key Analyst Concerns

  • Deposit Growth Outpacing Credit Growth

    • Concern: Deposit growth at 9.13% YoY has outpaced credit growth at 14.93% YoY, raising questions about sustainability.
    • Management Response: Emphasized maintaining market share (~23%) and ensuring incremental credit growth is supported by incremental deposits. Confident in crossing the 10% deposit growth milestone.

  • Xpress Credit Growth Slowing

    • Concern: Xpress Credit growth fell below 10% YoY.
    • Management Response: Explained that high repayment rates and recent process improvements contributed to slower growth. Confident in returning to double-digit growth, especially during the busy season.

  • Other Income Sustainability

    • Concern: Significant increase in other income components like trading gains and forex income.
    • Management Response: Acknowledged the contributions from trading gains and recoveries. Plans to focus on sustainable sources like loan processing charges and ecosystem banking to maintain other income.

  • Provision Changes

    • Concern: Increase in provisions from ₹283 crore to ₹876 crore, including a ₹600 crore provision addition.
    • Management Response: Clarified that the increase is due to the end of a previous provision write-back and regular provisioning, ensuring a buffer for asset quality.

  • Current Account Growth and Market Share

    • Concern: Maintaining current account growth amidst shifting customer behaviors.
    • Management Response: Implemented strategies like Transaction Banking Hubs and Relationship Management Teams. Achieved 10% YoY growth and emphasized ongoing efforts to sustain and increase market share.

  • RWA Levels

    • Concern: Historical RWA ratios above 60% versus current levels in low fifties.
    • Management Response: Maintained focus on Return on Risk Weighted Assets (RORWA) and plans to keep RWAs consistent, citing recent acquisitions and portfolio adjustments.

  • Cards Business Delinquency

    • Concern: Elevated loss rates in the cards subsidiary.
    • Management Response: Explained that the cards business operates independently with higher credit thresholds. No significant correlation with Xpress Credit delinquency rates.

  • Monetizing Stake in YES Bank

    • Concern: Plans for monetizing stake in YES Bank.
    • Management Response: No immediate plans, will deliberate at an opportune time.

4. Management Tone Analysis

  • Overall Tone: Confident and assertive, with cautious optimism.
  • Confidence Indicators:
    • Strong performance metrics and achievement of deposit milestones.
    • Clear guidance with specific targets for credit and deposit growth.
    • Assurance in maintaining asset quality and robust provisioning.
  • Cautious Optimism:
    • Acknowledgment of challenges such as deposit growth outpacing credit and temporary slowdowns in specific loan products.
    • Emphasis on process improvements and strategic initiatives to address concerns.
  • Consistency: Emphasized the importance of maintaining consistency in performance without seeking to create surprises.
  • Forward-Looking Statements: Focused on sustaining growth, enhancing digital initiatives, and optimizing asset and liability management.

Conclusion

State Bank of India showcased a strong Q2FY25 performance with significant growth in deposits and credits, robust profit margins, and maintained excellent asset quality. Management remains optimistic about achieving their guidance while addressing analyst concerns through strategic initiatives and process improvements. The overall tone was confident yet measured, reflecting a balanced approach to growth and risk management.