SBIN — earnings call

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Prepared remarks

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MR. ASHWINI KUMAR TEWARI · MANAGING DIRECTOR (INTERNATIONAL BANKING, TECHNOLOGY AND

MANAGING DIRECTOR (INTERNATIONAL BANKING, TECHNOLOGY AND

SUBSIDIARIES) · MR. ALOK KUMAR CHOUDHARY

MR. ALOK KUMAR CHOUDHARY

DEPUTY MANAGING DIRECTOR (FINANCE) · MR. SHIVA OM DIKSHIT

MR. SHIVA OM DIKSHIT CHIEF GENERAL MANAGER (FINANCIAL CONTROL) MR. CHARANJIT ATTRA

CHIEF FINANCIAL OFFICER · MR. PAWAN KUMAR KEDIA – GENERAL MANAGER (PERFORMANCE,

MR. PAWAN KUMAR KEDIA – GENERAL MANAGER (PERFORMANCE,

PLANNING & REVIEW) · Management

State Bank Of India February 05, 2022

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to State Bank of India Q3 FY21-22 Earnings Conference Call.

As a reminder, all participant lines will be in listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call please signal operator by pressing “*” then “0” on your touchtone phone.

Please note that this conference is being recorded.

I now hand the conference over to Mr. Pawan Kumar Kedia - General Manager, Performance Planning and Review, State Bank of India.

Thank you and over to you sir.

MR. ASHWINI KUMAR TEWARI · MANAGING DIRECTOR (INTERNATIONAL BANKING, TECHNOLOGY AND

Thank you.

Good evening ladies and gentlemen.

I am Pawan Kumar Kedia, General Manager Performance Planning and Review.

On behalf of the top management of SBI, I extend a warm welcome to all joining us today and on SBI Q3 FY22 Earning Conference Call.

On the call today we have with us our Chairman, Mr. Dinesh Kumar Khara; Mr. C.

S.

Setty, Managing Director, Retail and Digital Banking; Mr. Ashwani Bhatia, Managing Director, Corporate Banking and Global Markets; Mr. Swaminathan J, Managing Director, Risk, Compliance and Stressed Assets Resolution Group; Mr. Ashwini Tewari, Managing Director, International Banking, Technology and Subsidiaries; Mr. Alok Choudhary, Deputy Managing Director, Finance; Mr. Charanjit Attra, CFO.

Before I request our Chairman sir, to give a brief summary of the bank’s Q3 FY22 performance and the strategic initiative undertaken, I would like to read out the Safe Harbor statement.

Certain statements in these slides are forward-looking statements.

These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances.

Actual outcome may differ materially from those included in the statements due to a variety of factors.

Thank you.

Now, I would request our Chairman sir to make his opening remarks.

Thank you.

A very good evening to all of you.

It’s a pleasure to connect with you once again, virtually amidst the ongoing pandemic.

Thank you for joining this conference call on a Saturday evening.

I would like to start by thanking all our stakeholders including our customers, shareholders, employees, and the broader ecosystem, which has been supportive of our effort and initiative in our banking journey.

For the last two months or so, we have seen a sharp increase in COVID-19 cases due to new Coronavirus variant Omicron.

However, its effect has been nowhere as deadly as the second wave thanks to the government’s massive vaccination drive, including precautionary booster dose for certain categories.

The extension of vaccination to the age group of 15 to 18 also has contributed to better preparedness in dealing with the virus and return to normalcy.

The quarter three of the financial year 22 results, further validates that the bank’s performance is improving steadily.

I would like to highlight a few key indicators of our performance, which are essentially relating to the bank’s profit.

Net Profit for the quarter has increased to 8432 crores which is a Y-o-Y increase of 62.27%.

Operating profit has also increased marginally by 6.86% Y-o-Year, our ROE has improved from 9.49% to 14.01% Y-o-Y basis.

Our net interest income for quarter three of financial 22 is up 6.48% Y-o-Y and our domestic NIM is up by six basis point Y-o-Y, even as the CD ratio is at 60.89%.

We believe that these are an outcome of the bank’s focus on profitable State Bank Of India February 05, 2022 growth.

Given the trust, our brand enjoys our heritage and our reach.

We aim to deliver best value to our customers while being profitable.

As I’ve said in my prior interactions, we will lend at price points which add value to all of us.

The gross NPA ratio of the bank has come down from 4.9% to 4.5% on a quarter-on-quarter basis, while the net NPA is at 1.34% for quarter three of financial year 22.

The net NPA stands at 34,540 crores and additional provisions not included in that NPA are 30,089 crores.

The bank’s operating profit for nine month period including additional provision is 2.48 times the net NPA levels, which makes it one of the most resilient balance sheet in the recent years.

Our slippage ratio for nine months financial 22 is at 1.16%, while our slippage ratio in quarter three of the financial 22 is 0.37%.

This is largely an outcome of the critical changes that have been made in our underwriting processes through the large cycles.

Further, it highlights the inherent quality of the bank’s underlying portfolio, which continues to be one of the lowest RWA portfolio in the nine months.

The CET1 ratio of the bank is at 9.38% at the end of December 21.

And if we include the profit earned during the year, the ratio stands at 10.32%.

We believe that the internal accruals are adequate to support the credit growth through the financial year 23.

The bank’s journey towards digital leadership continues and is adding significant value both for the bank and to its customers.

The bank super app YONO is gaining strength by addition of new features.

From a longer term perspective, I would like to highlight that we are one of the best managed institutions in the country.

Our management quality and the bandwidth enable us to efficiently manage the scale and complexity of our business across the globe.

We continue to attract the best talent in the country.

In fact, our probationary officers exam is one of the most competitive exams in the country, with an intake ratio of 0.2% compared to a 1% intake ratio in the common admission test for the leading Management Institutes.

In the recent past a number of our top executives have gone to at both public sector undertakings private sector banks, and also FIs.

Our team is committed to deliver +15% ROE consistently over the long term.

As credit growth picks up we expect the profitability ratios to improve further.

While the longer term prospects are clear now in the last quarter, we would still prefer to wait before giving guidance on key variables.

To wrap up my opening remarks, I would like to thank you all for your support to the bank.

We remain committed to reward your trust in us with superior sustainable returns over the long term.

I wish everyone very good health and prosperity.

My team and I are now open to taking your questions.

Thank you.

Mahrukh Adajania: · How much sir?

Sir yes, but sir is it possible to have a figure like we had a figure of 8000 crore of first two quarters recovery in the second quarter.

Any other similar number for the third quarter for nine

Thank you sir.

Sir, my next question is just on the rate outlook, so market rates are hardening.

Now, just in terms of loans and deposits, for loans how much of your loan would be repo linked, of course external benchmark but within that repo linked, because that would re-price only when the repo changes?

How much sir?

Okay, sir.

But most of this will reprice only when the repo will hike, right?

Got it sir.

Sir and just in terms of deposits, so the growth in savings on a sequential basis.

This quarter has been a little under 2% on a sequential basis.

So do you visualize the situation given hardening rates, that in the next two to three months we’ll have to increase your savings rate, because if you’re increasing your term deposit rates, then the re-pricing is only incremental but saving that will be outstanding.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Kunal Shah from ICICI Securities.

Please go ahead.

Kunal Shah

So, firstly in terms of the overall growth on the corporate side, so last couple of quarters, we have been highlighting that there would be utilization of the working capital limits and when we see it across the industry, larger part of growth is coming in from the petroleum and the other industries while deleveraging is continuing in the iron and steel roads, transport and all.

So, now how do you see the outlook given maybe government is also putting a lot of trust on CAPEX and overall how would we participate in terms of the corporate credit growth given the competition?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Mona Khetan from Dolat Capital.

Please go ahead.

Mona Khetan

So, firstly, on the cost to assets for nine month, it stood at about 1.8% for SBI.

So, where do we see this moving over the near term, could it normalize back to the 2% levels, we’ve seen earlier or should it remain where it is?

Moderator · Conference Operator

Thank you.

Our next question is from line of Akash Jain from Ajcon Global Services Limited.

Please go ahead.

Akash Jain

I had a question regarding recoveries.

Sir what would be the recovery from written of accounts in this quarter?

Moderator · Conference Operator

Thank you.

Next question is from Jay Mundra from B&K Securities.

Please go ahead.

Jay Mundra

I have a couple of questions, first is sir we have seen around 1490 crores of MTM, depreciation this quarter, is this mainly pertaining to GSEC bonds or what is there?

Moderator · Conference Operator

Thank you.

Our next question is from Mahesh M B from Kotak Securities.

Please go ahead.

M B Mahesh

Just two questions from my side.

One is, how are you looking at your capital adequacy number, in the sense that if growth does come back, would you still want to look at a possible capital raise any time soon.

Or you think that internal accruals part sufficient to manage the near term growth numbers?

Moderator · Conference Operator

Thank you.

Our next question is from Jignesh Shial from InCred Capital.

Please go ahead.

Jignesh Shial

The same thing I wanted to check, so with the kind of growth rate of around single digit 9% to 10% there is no immediate capital raise is we looked into.

That is what has been mentioned, is that correct?

Moderator · Conference Operator

Thank you.

The next question is from Gaurav Kochar from Mirae Asset.

Please go ahead.

State Bank Of India February 05, 2022

Gaurav Kochar

Just a couple of questions, first one is your outlook on credit cost for fiscal year 23 given that you have seen a very good sort of credit environment, asset quality is held up quite well despite the three waves of COVID.

So just wanted some color around that, and in that context, if I look at the write-off pool, it’s at around 1,80,000 crore today.

So, what kind of recovery should we assume going ahead from that pool and on a net basis are we looking at a very benign net credit cost for fiscal year 23, that’s the first question.

Moderator · Conference Operator

Thank you.

Next question is from Manish Oswal from Nirmal Bang.

Please go ahead.

Manish Oswal

My question on the, our interest income during the quarter.

So, we saw a growth of 5% on 5.5% on loan book side but NII on the declining side so any one off in the previous quarter to this quarter sir, can you clarify on that?

Moderator · Conference Operator

Thank you.

Next question is from Ashok Ajmera from Ajcon Global Services.

Please go ahead.

Ashok Ajmera

Thank you for this opportunity and congratulations Mr. Khara and the entire team once again you’re made the operating profit of 18,521 crores making the bank to be, making a profit of 75,000 crores on the annualized basis if you take it or it will go rather more which is really commendable.

And even on the other front of the various ratios NPA, gross NPA, net NPA your PCR, ROE, fantastic results.

Having said that, because most of the questions have already been covered.

I would just seek your view though the time has been very short from the budget to now.

So, with this RBI supported digital currency movement now coming in, maybe it may take some time but yes it is going to be there.

Sir have you got any time to think over it to, how it will disrupt the entire banking system, whether the deposits will flow out of the banking system whether, what kind of impact it can have because it is going to come that is for sure now.

So this is my first questions, not only a question, I just want your views on this sir.

Moderator · Conference Operator

Thank you.

The next question is from the line of Saurabh from JP Morgan.

Please go ahead.

Saurabh

Sir, just two questions.

One is, the current account has gone down quarter-on-quarter, could you just highlight what’s happened there, current account deposits.

And the second is sir on this NIMs, just from the understanding I’ve got is essentially that you do get a positive benefit from rates given the orientation of the book, but you would at the interest of loan growth, would look to pass on some of that benefit back to consumers and keep the ROA around that 0.8%, 1% level.

These are two questions sir, thank you.

Moderator · Conference Operator

Thank you.

Next question is from Manish Shukla from Axis Capital.

Please go ahead.

Manish Shukla

First question is on the loan book you said about 22% is EBLR, could you give the break up for the rest how much is MCLR and how much is fixed rate?

Moderator · Conference Operator

Thank you.

The next question is from the line of Krishnan from HDFC Securities.

Please go ahead.

State Bank Of India February 05, 2022

Krishnan

Couple of queries one goes around the express credit segment, there’s been a furious pace of growth there for a few quarters now.

Just want to understand your sense of what kind of end use are you seeing here, what kind of ticket sizes are these typically that’s one.

The second is, now obviously private sector banks are allowed to compete for the government business.

Just wanted to understand your thoughts around how the competitive intensity is.

And where does SBI continue to have a right to win?

Moderator · Conference Operator

Thank you.

The next question is from Anand Dama from Emkay Global.

Please go ahead.

Anand Dama

Sir, one thing a lot of private banks have given how much is the tax spend as a percentage of OPEX, is it possible for you just to give a ballpark figure over there?

Moderator · Conference Operator

Thank you.

Our next question is from Abhishek Khanna from Jefferies.

Please go ahead.

Prakhar

Good evening sir this is Prakhar, just a couple of questions, while I appreciate you don’t want to disclose your gross slippages numbers, which all the other banks in the industry do that.

But if I’m looking at the credit cost numbers for the quarter, it is sequentially up 15%.

And would it be fair to see that on a quarterly flow basis, your net slippage would have been higher by a similar percentage more or less?

Moderator · Conference Operator

Thank you.

Our next question is from Nitin Agarwal from Motilal Oswal Securities.

Please go ahead.

Nitin Agarwal

So, sir couple of questions like one is like we have been reporting very benign levels of slippage for last few quarters now.

And 4Q is seasonally a strong quarter from asset quality angle.

So how do you see the sustainability of this current slippage run rate?

Moderator · Conference Operator

Thank you.

Our next question is from Nilanjan Karfa from Nomura.

Please go ahead.

Nilanjan Karfa

Sir just want to go back to a strategic question.

So we are probably running the lowest cost of deposits and as rates are hardening, don’t you think this is the right opportunity to continue to pass on some of the rate benefits maybe in terms of fee maybe in terms of spread and greater wallet share of the customer.

And also considering that our credit cost are probably going to run much below the historical size, is this kind of a thought is something that has been discussed in the top management and any strategic intent on this side?

Moderator · Conference Operator

Thank you.

Next question is from Adarsh Parasrampuria from CLSA.

Please go ahead.

Adarsh Parasrampuria

Couple of questions, one does SBI even need to raise capital over the course of the next 12 months, because from March, if you add that proforma of profits, there has been a 30 basis point improvement in our CET one level.

So just wanted to understand, can you self-finance your growth because ROEs are better than growth, so if you can do it yourself?

Moderator · Conference Operator

Thank you.

Our next question is from Sumeet Kariwala from Morgan Stanley.

Please go ahead.

Sumeet Kariwala

I just had one data question.

What is the incremental yield on the unsecured loan book if that’s available.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, due to paucity of time that would be our last question for today.

I would now like to hand the floor over to the management for their closing comments.

Thank you and over to you.

MR. ASHWINI KUMAR TEWARI · MANAGING DIRECTOR (INTERNATIONAL BANKING, TECHNOLOGY AND

Thank you very much.

The time taken by all of you on a Saturday evening.

Look forward for your continued support.

All the very best.

Enjoy your weekend.

Stay safe, bye.

State Bank Of India February 05, 2022

Moderator · Conference Operator

Thank you very much.

Ladies and gentlemen on behalf of State Bank of India that concludes this conference.

Thank you all for joining us.

And you may now disconnect your lines.

Questions and answers

Moderator · Conference Operator

Thank you very much.

Ladies and gentlemen, we will now begin the question-and-answer session.

First question is from the line of Mahrukh Adajania from Edelweiss.

Please go ahead.

Mahrukh Adajania: · How much sir?

My first question is on recovery.

So, excluding inter quarter recovery, what would be the gross slippage in Q3 and in the first half you already had inter quarter recoveries of 8000 crores So, what would that figure be for nine months or just for the third quarter?

State Bank Of India February 05, 2022