Back

Analyst Meet / AGM - Analyst Meet

Expects to achieve RoA of 1% in FY2020 ahead of earlier guidance of FY2021

State Bank of India

11-May-2019, 12:12
State Bank of India conducted an analyst meet on 10 May 2019 to discuss the financial performance for the quarter ended March 2019 and prospects of the bank. Rajnish Kumar, Chairman of the bank addressed the call:
Highlights:

The bank has maintained asset quality and fresh slippages of loans under control, while the bank has provided more than required provisions for the legacy assets. The provision coverage ratio has substantially increased to 78.7% end March 2019 from 74.6% a quarter ago and 66.2% a year ago.
The credit cost of the bank has moderated to 2.66% in FY2019 from 3.62% in FY2019. However, the provisions for fresh slippages in FY2019 amounted to only 0.52% and the rest was for the legacy book. Thus, the bank expects credit cost for fresh slippages to be substantially less than 1% in FY2020.
The net NPAs in the corporate loan book of the bank stands at Rs 34000 crore with recoverability of 50%, so this book requires provisions of Rs 17000 crore in FY2020 and the bank expects its overall credit cost to be much under control in FY2020.
The fresh slippages of loans declined to 1.6% in FY2019 from 4.85% in FY2018. The bank expects its asset quality to be under control going forward, as it has taken series of steps such as rewriting of loan policies, cash flow based lending, credit monitoring department, early warning system, stressed asset resolution group etc.
The bank has exhibited sharp decline in SMA 1 and 2 category loan book to Rs 7762 crore end March 2019 from Rs 17059 crore end December 2018 driven by upgradation of one large private sector power account. Also, the corporate segment share is less than half of the total SMA loan book.
The bank has recorded strong recoveries of Rs 38000 crore in FY2019, of which Rs 13000 crore came from IBC process. The bank expect to record similar recovery performance targeting recoveries of Rs 35000-38000 crore for FY2020 with three accounts relating to Essar Steel, Bhushan Power and Alok Industries would contribute recoveries of Rs 16000 crore by end December 2019.
With healthy credit growth of 12-14%, yields rising, cost of deposit moderating, better NIMs with rising share of performing loans, other income doing well, opex under control, lower credit cost, improved competitive scenario in favour of bank, the bank expects to achieve ROA of 1% in FY2020 ahead of earlier guidance of FY2021.
The bank is looking at pre provision operating profit of Rs 70000 crore for FY2020. Further, it expects recoveries income of Rs 16000 crore from 3 accounts under NCLT and around Rs 5000 crore including stake sale in two subsidiaries totaling to operating profit of Rs 90000 crore for FY2020. After provisions and tax, the net profit is expected to be in the range of Rs 35000 to 40000 crore for FY2020, which would support the bank to achieve RoA of 1%. Even, in case of any uncertain shock, the bank expects to comfortably achieve RoA of 0.75% in FY2020.
The bank is targeting the net interest margin of 3.25% for FY2020, on account of better yields and decline in cost of funds, while the share of performing loans is also rising supporting the net interest margins.
The bank had made additional expenses of Rs 6000 crore for employee benefit in FY2019, of which Rs 3800 crore related to pension benefit and Rs 2100 crore related to the gratuity. The bank expects its pension expenses to halve to Rs 1900 crore and there would be no need to make gratuity provision, substantially reducing expenses for employee benefit in FY2020.
The bank does not have any concern on deposit growth, as its credit-deposit ratio stands at 70% and it would be comfortable till rises o 75%.
The loan mix between retail and corporate stood at 58-42 end March 2019, while the bank expects to maintain the current loan mix going forward.
The write-off loans stood at Rs 59000 crore in FY2019, bulk of which was corporate at Rs 45000 crore.
Under NCLT 1 list, the bank has made provisions of 99% with additional provisions of Rs 10800 crore for 3 accounts in Q4FY2019 as they have shifted to D3 category and the bank did not ask for dispensation from the Reserve Bank of India on these accounts and they are on the verge of recovery.
The provision on NCLT 2 list stands and 87% and provisions on overall NCLT exposure is 93% end March 2019.
The bank does not expect any major resolution in the power sector as most of the accounts have been sent to NCLT. The NPA in power sector stands at Rs 25000 crore, with the provision of 45-50%. The bank is expecting resolution of 2 power accounts in near term with the exposure of Rs 1800 crore.
The bank has recorded cash recoveries of Rs 38000 crore, of which Rs 8300 crore came from advance under collection account (AUCA).
Under NCLT 1, the balance sheet exposure is Rs 24000 crore of which Rs 8800 crore is under AUCA, while NCLT 2 exposure is Rs 14000 crore of which Rs 11000 crore is under AUCA.
The bank's exposure under AUCA is above Rs 1 lakh crore end March 2019.
The bank has exposure of Rs 3487 crore to IL&FS, of which Rs 1125 crore is classified as NPA and the bank has made provisions of 40.1%. Under standard exposure, a red category is Rs 451 crore with 22% provision. The bank expects recoveries in SPVs to be much better.
The bank has classified its exposure to Jet Airways as a substandard and also made a provision which is higher than regulatory requirement. The NPA in Jet Airways is Rs 1220 crore, which adds 7 bps to GNPA.
The non fund based exposure to NPA accounts stands at Rs 8700 crore end March 2019.
Bank does not have any exposure to commercial real estate, while exposure is limited to residential project of Rs 200 Rs 300 crore.
The bank has announced promotion results well in time for FY2019 and the new posting will take place in next 10 days.
The bank is putting strong focus on data analytics and it is sitting on huge database which will be utilized for right decision making.
On digital front, the bank has been leader, while in next 18 month the bank expects to have a unique system in place.
The exposure to NBFC sector stood at 7% of the loan book, which is in line with the internal cap for the sector. Also, all industry exposures are linked Tier I capital and any industry exposure will not exceed the Tier 1 capital.
The bank has linked its interest rate on cash credit and overdraft facility of over Rs 1 lakh to RBI repo rate effective from 01 May 2019, while reduce the rate to 8.25% from 8.5% on account of RBI repo rate cut in early April 2019. The cash credit and overdraft book stands at Rs 5 lakh crore.
The RIDF book of the bank stands at Rs 1.3 lakh crore end Marc 2019.
Unrated exposure of the stood at 9%, while BB and below rated portfolio accounted for 18% of the corporate loan book.
Fresh slippages of loans stood Rs 7500 crore in Q4FY2019, of which Rs 2284 came from corporate, Rs 2092 crore from SME, Rs 2592 crore from agriculture and Rs 537 crore from personal loan segment.
Segment wise, corporate loan book growth was at 14.83% personal loans at 18.53%, SME at 6.92% and Agriculture at 7.67% end March 2019
The bank would be able to grow its loan book easily at 12% without capital infusion, while the bank may consider capital raising at a better market value of Rs 400 per share.