SBI’s 3QFY21 profit of Rs52bn (-7% YoY) was ahead of estimates, led by reduced credit fees. Key positive was reduced slippages (pro forma, not annualised at .8% for 2Q-3Q) that have been reduced than peers, manageable restructuring of .8% of loans & collections of 97%. PPOP was a tad reduced due to larger employees fees, but provision beat covered for this. Better asset high quality drives our sharp earnings upgrade and we also raise our PT to Rs 480 (from Rs 340). Maintain Buy.
Strong overall performance on asset high quality: Asset high quality has held up nicely in 3Q with 97% collection efficiency. Reported proforma slippages of .4% of loans in 3QFY21 was under our expectations and even adjusted for higher proforma NPLs in 2Q it would be .8%, which is reduced than private banks’ 1.1-1.2%. In our view this reflects reduced share of retail and unsecured lending at SBI, which on the other hand led the proforma slippages for most private banks. Moreover, restructuring is restricted to .8% of loans and collection efficiency is steady at 97%. Bank has disbursed Rs230bn (1% of loans) beneath ECLG scheme to MSMEs. SBI carries fairly reduced contingent provision buffer at .3% of loans, that delivers reduced cushion than pvt bank peers. We now see gross slippages at 1.9-2.% of loans more than FY22/23E and credit fees at 1.4% — these drive upgrades to our earnings forecasts.
Strong deposit franchise will help development. SBI rewards from a robust deposit franchise that will assistance market place share gains, based on its low funding fees. During 3Q, its Casa deposits grew by 15% YOY with Casa ratio at 45% of deposits. Lower funding fees enable to provide reduced lending prices vs. even the bigger private banks — this can enable get share in the improved high quality corporate loans.
Slight miss on op. profit led by larger employee fees. NII grew 4% YoY with loan development tracking slightly above program loan development at 7% YoY, primarily led by robust development in retail (15% YoY).
Raise earnings & price tag target preserve Buy. On the back of reduced credit fees, we raise FY22-23 earnings forecasts by +30% and count on SBI to realize ROE of 11%. SBI is a preferred recovery play in India and we preserve our Buy rating with a revised price tag target of Rs 480 (Rs 340 earlier) based on 1.2x Dec-22 adjusted PB.