Equity Analysis

• The bank has witnessed good quarter on various fronts such as asset quality, earnings, NPA management, NII, NIM, operating income.
• The bank has registered one-time gain of around Rs 3500 crore from sale of 4.5% stake in SBI Life in Q2FY2020, which is used for upfronting of provisions for one failed restructuring case with provision for funded as well as non-funded exposure, while the bank has also made provisions of Rs 900 crore for one stressed NBFC exposure with provisions coverage of 20%
• The bank had earlier provided Rs 500 crore earlier for NBFC account making cumulative provisions of Rs 1424 crore.
• The bank is now sitting on excess provisions of substantial amount. The provision coverage ratio of the bank has increased to 81.2% end September 2019.
• The bank has built three shock absorbers of which one is CRAR of 13.79% without including profits for H1FY2020, second is more than required provision coverage ratio and third is consistent improvement in operating profit.
• NIM has gone up to 3.22% up 42 bps on year on year basis, driven by efficient asset liability management and interest income recognition on recoveries of NPAs. The bank sees further scope improvement in margins ahead.
• The bank is sitting on surplus liquidity. The saving despots of the bank grew 7%, despite the saving deposits rate of the bank is lowest in the industry. The bank has posted healthy 12% growth in current account deposits. As per the bank, it's difficult to reduce SA rate below 3%.
• On loan growth front, the retail loan growth of the bank remains healthy, while the corporate loan growth is weak as working capital utilization is lower around 30-31%. The bank expects corporate loan growth to pick up in H2FY2020.
• The bank is targeting loan growth of 10% for FY2020 with busy second half.
• Reduction in risk weights for certain category of loans and DTA reduction has contributed improvement in CRAR of 60-80 bps.
• The deferred tax assets of the bank have declined to Rs 7000 crore end September 2019 from Rs 10000 crore end March 2019.
• The bank has exhibited decline in fresh slippages of loans in Q2FY2020. The bank expects normal slippage run rate of 1.5-1.6%, while slippage ratio can increase to 2.0%, if any high value account adds to slippage.
• The bank expects its credit cost at 1.6-1.7%, while the credit cost can be lower at 1.1-1.2% in a good scenario and further low at 0.8-.1.0% in very good scenario.
• The bank is targeting RoA of 0.5-.6% in FY20 and 1% by FY2021.
• The bank is in right direction, long term outlook is bright. The bank is targeting operating profit of Rs 70000 crore in FY2020, while aims to improve operating profit to Rs 1 lakh crore in next three years with requires 15% annual growth.
• Telecom exposure stands at Rs 35735 crore of which Rs 26408 crore is standard with standard public sector exposure at Rs 7443 crore and private sector at Rs 18965 crore. The non-funded exposure to telecom stands at Rs 18000 crore. Provisions on telecom exposure are lower as most of exposure is high rated, while the chances of default are small.
• The bank expects to take a call at annual results on migration to new rate. Most probably the bank would migrate to new corporate tax rate.
• Mudra loans exposure stands at Rs 26000 crore and at NPA Rs 4000 crore.
• The NPAs in the power sector stands at Rs 24000 crore to 19 accounts with 54% PCR. Expect resolution of quite a few accounts in Q3FY2020.
• Most of agriculture slippages came from two states due to farm loan waiver issues. The schemes are over and agriculture slippages are expected to decline ahead.
• The employee benefits provisions surged to Rs 4545 crore in Q2FY2020 from Rs 3100 crore Q2FY2019.
• Expense ratio target 45% in two years. No scope for further reduction in expenses, while expense ratio improvement can come from enhanced income.
• The share of employees on defined benefit scheme stands 58%, which is expected to decline 52% to total employee base by March 2020.
• The bank witnessing reduction in head count by 5000 every year.
• All subsidiaries performing well. SBI Life m-cap crossed Rs 1 trillion. SBI cards listing likely in Q4FY2020.

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