For Q1FY22, SBI reported profit of Rs 65 bn, 55% y-o-y, led by other earnings & tad decrease provision. Slippages at 2.8% of previous loans had been above expectations, but c.30% was recovered in July & we see scope for upgrades in Q2-Q3. Despite stronger Casa, SBI has lagged on loan development (6%) due to quest for NIMs & asset high quality that restricted development in corp. & SME loans. We see that priority staying, therefore development may possibly lag. Still, SBI stays amongst essential picks with Buy rating.
Slippages larger than anticipated: SBI reported larger than anticipated slippages of Rs 163 bn (2.8% of previous year loans on annualised basis), led primarily by larger anxiety in SME (40% of slippages) and retail loans (30% of slippages). GNPA edged larger 34bps q-o-q to 5.3% in Q1FY22 and restructured book was .9% of loans. Encouragingly, management clarified that nearly 30% of that (Rs 48 bn) was recovered in July. Collection efficiency has also enhanced to 93.5% in July (92% in June).
Despite constructing in more buffer provision, credit charges dipped to 1.6% (1.8% in Q4). Overall buffer provision is restricted at about .6% of loans. We have raised our credit price estimates marginally to aspect in the Covid 2. influence, but count on trends from Q2 onwards to move towards normalised levels.
Focus on margins and asset high quality drags development: Gross loans grew 6% y-o-y and NII development was 7% even following adjusting for interest reversal. While SBI has a powerful deposit franchise (Casa ratio at 46% and low funding charges) and development in retail loan book has been powerful (16% y/y in Q1), its cautious method towards stressed SME segment (2% y/y in Q1) and its preference to preserve margins really should constrain development in corporate loans (down 2% y/y). We therefore count on loan development to see only a marginal improvement towards 9% CAGR more than FY21-24e, decrease than essential private bank peers.
Some stress on NIMs, costs impacted by lockdowns: Reported NIM was 2.92% in Q1 (2.9% in Q4), but adjusting for interest reversal of `8 bn in Q1FY22, underlying margins fell to 3% in Q1 vs. 3.2% in Q4FY21. Fee earnings dipped 36% q-o-q, but gains from sale of investment boosted other earnings. Operating charges moderated vs. elevated Q4FY21 levels, resulting in much better than anticipated PPOP.
Subsidiaries also impacted by Covid: SBI Life profit fell 23% y-o-y due to upfronting of Covid claims in Q1, but development was healthful. At SBI Cards, income fell 23% to `3.1 bn due to larger provision, but ROE (19% in Q1) and rebound in transactions was encouraging. SBI Funds saw powerful 30% y-o-y development in Q1FY22.
Trim estimates: We trim our FY22-23 EPS by 4% as we incorporate marginally decrease NII and provision estimates. We reiterate Buy with a rolled-forward TP of `550 (`520 earlier) based on 1.3x June-23 adjusted PB.