concalls

SBIN

Earnings Call Summary - Q3FY24

State Bank of India Q3FY24 Earnings Call Analysis

1. Summary of Quarterly Results

| Metric | 9MFY24 | 9MFY23 | Change | |-------------------------------------|----------------------------------|----------------------------------|-------------------------| | Net Profit | ₹40,378 crores | ₹33,725 crores | +20% YoY | | Q3FY24 Net Profit | ₹9,164 crores | (Not specified) | | | Return on Assets (ROA) | 0.94% | 0.87% | +7 bps YoY | | Return on Equity (ROE) | 19.47% | 18.59% | +88 bps YoY | | Cost-to-Income Ratio | 57.35% | (Not specified) | | | Overheads (Sequential Change) | -3.10% | | | | Gross NPA Ratio | 2.42% | 3.14% | -72 bps YoY | | Net NPA Ratio | 0.64% | 0.77% | -13 bps YoY | | Slippage Ratio | 0.67% | 0.72% | -5 bps YoY | | Credit Cost | 0.25% | 0.37% | -12 bps YoY | | Liquidity Coverage Ratio (LCR) | 131% | (Not specified) | | | Unencumbered Excess SLR | ₹4 trillion | (Not specified) | | | PCR (Provision Coverage Ratio) | 91.49% (incl. AUCA) | (Not specified) | | | Asset Quality | Lowest in 10+ years | | | | Credit Growth | Retail: 15% YoYAgri: 18% YoYSME: 19% YoYCorporate: 11% YoY | | Robust across segments | | Digital Banking Progress | 59% of new savings accounts via YONO₹95,000 crores sourced through analytics (+37% YoY) | | Significant growth |

Key Highlights

  • Profitability: Net profit for the first nine months of FY24 increased by 20% YoY to ₹40,378 crores. ROA improved by 7 basis points to 0.94%, and ROE rose by 88 basis points to 19.47%.

  • Cost Efficiency: The cost-to-income ratio stands at 57.35%, indicating effective cost management with a 3.10% sequential decline in overheads.

  • Asset Quality: Significant improvement in asset quality with Gross NPAs decreasing by 72 basis points to 2.42% and Net NPAs by 13 basis points to 0.64%. Slippage ratio also improved by 5 basis points to 0.67%.

  • Credit Growth: Robust credit growth across all segments, with SME loans leading at 19% YoY growth.

  • Digital Initiatives: Strong performance in digital banking with 59% of new savings accounts opened via YONO and a 37% YoY increase in loans sourced through analytics.

2. Management Guidance and Outlook

  • Deposit Growth: Expected to grow by 12-13% for FY24.

  • Credit Growth: Anticipated to expand by 14-15% for FY24, aligning with the overall Scheduled Commercial Bank (ASCB) advances growth.

  • Loan Growth Target: Aiming for an expansion of the loan book by approximately ₹7.5 trillion, translating to an 18-20% growth rate based on nominal GDP projections.

  • Capital Adequacy:

    • Current CET1 Ratio: 10.38%, with plans to maintain or enhance it through profit ploughback.
    • Future Capital Plans: Open to raising equity capital if credit growth exceeds expectations, ensuring no hindrance to growth ambitions.

  • ROE Aspiration: Sustainable delivery of ROE above 15% through various business cycles, with a target to exceed 20% in the future.

3. Key Analyst Concerns

a. Wage Revision Provisions

  • Concern: Classification of wage revisions as an exceptional item and its impact on profitability.
  • Management Response:
    • Provisions are made for wage increases (from 10% to 17%) and pension anomalies as one-time exceptional items.
    • Total provisions for the financial year include ₹12,718 crores for wage hikes and ₹7,100 crores for pension liabilities.
    • These provisions ensure the balance sheet remains strong without significantly impacting long-term profitability.

b. Capital Adequacy

  • Concern: Alignment of capital adequacy ratios with other banks and the potential need for capital raising.
  • Management Response:
    • Current ROE growth is outpacing loan growth, allowing for profit ploughback to support capital adequacy.
    • Open to raising capital through AT1 instruments or other means if growth trends exceed expectations.
    • CET1 ratio projected to strengthen with continued ROE growth and disciplined capital management.

c. Credit Costs and Underwriting Practices

  • Concern: Sustainability of low credit costs and comparison with private sector banks.
  • Management Response:
    • Strengthened underwriting processes and enhanced Loan Management Systems to maintain low credit costs.
    • Focus on portfolio selection and maintaining high asset quality through disciplined risk management.
    • Continuous monitoring and proactive measures to stay ahead of potential risks.

d. Operating Expenses

  • Concern: Growth in other operating expenses excluding staff costs.
  • Management Response:
    • Operating expenses include business acquisition, technology expenses, insurance, GST, donations, and P&T expenses.
    • Growth attributed to specific initiatives like ATM, CDM, debit card expenses, and business development costs.
    • Efforts to control overheads with a sequential decline of 3.10%.

4. Management Tone Analysis

The management maintained a confident and optimistic tone throughout the earnings call. Key indicators include:

  • Confidence in Financial Performance: Highlighted robust net profit growth, improved asset quality, and effective cost management.

  • Proactive Risk Management: Addressed provisions for wage and pension liabilities transparently, emphasizing their one-time nature and the bank's strong balance sheet.

  • Growth Ambitions: Expressed clear intentions to sustain high credit growth and explore capital-raising opportunities to fuel expansion.

  • Commitment to Efficiency: Focused on enhancing productivity through digital initiatives and strengthening underwriting practices.

  • Balanced Outlook: Acknowledged external economic risks while emphasizing the bank's preparedness to navigate challenges.

Overall, the tone reflects strong confidence in the bank's strategies and its ability to sustain growth and profitability amidst evolving economic conditions.