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Earnings Call Summary - Q4FY24

State Bank of India Q4FY24 Earnings Call Analysis

1. Summary of Quarterly Results

Key Financial Metrics and KPIs

  • Net Profit

    • FY24: ₹61,077 crores (↑21.59% YoY)
    • Q4 FY24: ₹20,698 crores (↑125% QoQ)

  • Return Metrics

    • Return on Assets (RoA): 1.04% (↑8 bps YoY)
    • Return on Equity (RoE): 20.32% (↑89 bps YoY)

  • Cost Efficiency

    • Cost to Income Ratio: 55.66%
      • Excluding Wage Revisions and One-time Pension Liabilities: 49.34% (↓315 bps YoY)

  • Income Growth

    • Non-Interest Income: ↑41% YoY
    • Deposits: ↑11% YoY
      • Term Deposits: ↑16% YoY

  • Loan Growth

    • Total Advances: >₹20 trillion
      • Retail Personal Advances: ~₹13.50 trillion (↑14.68% YoY)
      • Agri Advances: >₹3 trillion (↑17.92% YoY)
      • MSME Advances: >₹4.33 trillion (↑20% YoY)
    • Corporate Advances: >16% YoY growth

  • Digital Banking

    • YONO Savings Accounts: 61% of new accounts in FY24
    • Total YONO Savings Accounts: ₹1.37 trillion (↑32% YoY)

  • Asset Quality

    • Gross NPA Ratio: 2.24% (↓54 bps YoY)
    • Net NPA Ratio: 0.57% (↓10 bps YoY)
    • Slippage Ratio: 0.62% (↓3 bps YoY)
    • Credit Cost: 0.29% (↓3 bps YoY)
    • Provision Coverage Ratio (PCR):
      • Including AUCA: 91.89%
      • Excluding AUCA: 75%

  • Liquidity and Capital

    • Unencumbered Excess SLR: ~₹3.7 trillion (as of 31/03/24)
    • Liquidity Coverage Ratio: 124% (as of 31/03/24)
    • CET-1 Ratio: 10.36% (highest since Basel 3 implementation)

  • Human Resources

    • Attrition Rate: 1.43%

2. Management Guidance and Outlook

Future Guidance

  • Loan Growth: Expected to grow at 13% to 15% annually.
  • Return on Equity (RoE): Aspiration to sustainably deliver above 15%.
  • Cost Efficiency: Aim to lower the cost-to-income ratio by focusing on the income side.
  • Capital Adequacy:
    • Current CET-1 Ratio: 10.36%
    • Future Capital Raise: Consideration of raising Tier-1 capital if growth demands arise, but currently capital is not a constraint.
  • Digital and Wealth Banking:
    • Wealth Business: Targeting an AUM of ~₹1 trillion within the next year.
    • YONO Expansion: Continued focus on expanding digital platforms to enhance efficiencies and customer acquisition.

Strategic Initiatives

  • Gift City Expansion: Strengthening presence through the International Banking Unit and subsidiaries like SBI Mutual Fund.
  • CASA Growth: Initiatives to increase market share in current accounts and savings deposits via digital enhancements.
  • Asset Quality Management: Maintaining low NPA and SMA ratios with ongoing efforts to improve credit quality.

Capital Raise Strategy

  • Primary Focus: Ploughing back profits to support growth.
  • Secondary Options: Raising capital through Tier-1 if necessary, with a focus on maintaining a cost-effective capital structure.

3. Key Analyst Concerns

1. RBI Guidelines on Provisioning

  • Concern: Impact of new RBI guidelines on provisioning requirements and capital adequacy.
  • Management Response:
    • Confident in the ability to absorb additional provisions without significantly impacting capital adequacy.
    • Highlighted existing non-NPA provisions of ~₹32,000 crores as a buffer.
    • Emphasized proactive engagement with RBI and belief in a balanced regulatory approach.

2. Increase in Miscellaneous Other Income

  • Concern: Significant QoQ increase in miscellaneous income (~₹3,100 crores).
  • Management Response:
    • AUCA Recoveries: Enhanced recoveries contributed substantially.
    • Other Sources: Dividend from subsidiaries, CNP Commission, and higher annual maintenance charges.

3. Capital Raise Plans

  • Concern: Future capital requirements and potential need for equity raises.
  • Management Response:
    • Prefer to utilize internal profits for growth.
    • Will consider raising Tier-1 capital if growth trends necessitate.
    • Assured that capital will not constrain the bank’s growth trajectory.

4. Margins Outlook (NIM)

  • Concern: Outlook on Net Interest Margins assuming no rate cuts.
  • Management Response:
    • Expect to maintain NIM around current levels (~3.43%).
    • Minor fluctuations anticipated based on international book performance.

5. Staff Cost and Overhead Growth

  • Concern: Run rate for employee expenses and potential overhead growth.
  • Management Response:
    • Additional staff costs expected to be ~₹6,000 crores annually.
    • Implementing efficiency measures to ensure overhead growth can remain slower than loan growth.

6. Corporate Book Growth and Competitive Intensity

  • Concern: Sustaining corporate loan growth amidst competitive pressures.
  • Management Response:
    • Confident in achieving 13-15% loan growth aligned with GDP.
    • Investing in capabilities and strategic segments like EV batteries and telecom manufacturing.

7. Provision Reversals and PCR Management

  • Concern: Ability to reverse provisions and maintain Provision Coverage Ratios.
  • Management Response:
    • Successful reversals from provisions related to NPA automation and standard accounts.
    • Maintains a strong PCR with existing provisions sufficient to cover potential risks.

4. Management Tone Analysis

Overall Tone

  • Confident: Demonstrated strong belief in the bank’s financial stability and growth prospects.
  • Optimistic: Highlighted robust performance metrics and positive future outlook, especially in digital banking and asset quality.
  • Cautious: Acknowledged potential regulatory changes and external economic risks, while assuring preparedness to manage them.

Significant Observations

  • Reinforced Confidence: Repeated assurances about capital adequacy and ability to absorb provisions indicate strong internal confidence.
  • Balanced Optimism: While optimistic about growth and digital initiatives, management remains cautious about regulatory uncertainties and macroeconomic factors.