State Bank of India Q3 FY21 Results 5 Point Analysis

INTRODUCTION

India’s largest lender, State Bank of India (SBI) stock price touched a record high of Rs.408 after Q3 FY21 results. The bank reported a robust operating performance in a challenging environment. Robust deposit growth even at declining interest rates, healthy recovery in the retail loans portfolio, stable net interest margin and the improved asset quality are the key drivers for the profitability. Let’s delve deep and understand all these with a 5 point analysis.

Q3FY21 Results

• SBI’s interest income has declined by 1.4% year on year to Rs. 66,734 Crore. This is due to the cascading effect of repo rate cuts, monetary transmission and further narrowing of interest rates on loans.
• On a more positive note, interest expenses have contracted by 5% relative to last year in the same quarter. This has transpired on the back of significant fall in savings account interest rates in the last 1 year. With SBI’s massive deposit base and even a 30 basis point fall does wonders.
• Their Net Interest Income stands at Rs. 28,820 Crore, which has jumped by 2.3% QoQ and 3.75% YoY. This particularly bodes well for the bank and is a healthy sign.
• Non-Interest Income has soared by a whopping 8% from Rs. 8,528 Crore in the previous quarter to Rs. Rs. 9,246 Crores at present. While operating expenses has increased by 11% on a year on year basis to Rs. 20,733 Crore. Both these exhibit return of normalcy in operations for the lender.
• Total provisions and contingencies have gone up by 43% as to compared to last year from Rs. 7,253 Crore to Rs. 10,342 Crore. As a consequence, profitability has taken a hit.
• Net Profit is at Rs. 5,196 Crore, down by 7% relative to the previous year from Rs. 5,583 Crore.

BALANCE SHEET SUMMARY

• SBI’s balance sheet size has experienced robust double digit growth of 16.2% from Rs. 37.49 lakh crores last year to Rs. 43.57 lakh crore. Concurrently, gross advances have also shoot up 6.7% and 3% on a YoY and QoQ basis.
• What’s jaw dropping is that despite the significant fall in savings account interest rates, SBI’s deposits have skyrocketed by 13.6% to Rs. 35.36 lakh crore. This could be attributed to people’s flight to safety amidst various recent complications reasons like – the Franklin Templeton Fiasco, issues with other debt funds or co-operative banks, etc.
• Credit to Deposit ratio is stagnant at 69.4% versus 68.7% in the previous quarter. Deposits have grown by higher proportions than advances. Credit to Deposit Ratio is at much lower range (70%) vs Private Banks (80-90%)
• Enough Liquidity Support : Lower Credit to Deposit Ratio offers sufficient liquidity and headroom to fund likely credit growth in coming quarters.
• SBI is relying heavily on external market borrowings. Presently, their borrowings are Rs. 4.1 lakh crore, which have catapulted by 56% and 37%, YoY and QoQ respectively.

DEPOSIT MIX

• India’s largest lender SBI’s total deposits as of Q3FY21 are Rs. 35.36 lakh crore, which is up by 13.6% from Rs. 31.11 lakh crore in the previous year. Their domestic term and CASA deposits stand at Rs. 18.78 lakh crore and Rs. 15.46 lakh crore.
• CASA deposits are responsible for 54.8% of the deposit mix. This is one the key reasons as to why the bank is profitable despite high NPAs. They enjoy voluminous funds at exceedingly low cost of borrowing. They can comfortably soldier through even without any recapitalization from the central banks.

ADVANCES MIX

• SBI’s overall domestic advances have accelerated 7.5% from Rs. 19.8 lakh crore in the previous year to Rs. 21.27 lakh crore.
• It is easily discernable that SBI has reduced their focus on domestic corporate advances. They are instead concentrating more on SME and domestic retail personal advances, which are safer with lower probability of default. This will help improve the bank’s asset quality in the coming quarters.

KEY RATIOS

• Net Interest Margin is at 3.34%, same as the previous quarter. Cost to Income ratio has marginally decreased by 70 basis points to 54.5% which augurs well for the bank.
• CASA Ratio is steady at 45.2%. It has predominantly been in the range of 44% and 46%. Capital Adequacy Ratio stands healthy at 14.5% and is abundant based on the bank’s massive size.

ASSET QUALITY

• SBI’s Gross NPA and Net NPA have been on a downward trajectory and as on Q3FY21 stand at 4.77% and 1.23%. On the contrary, their provision coverage ratio is following an upward trend and is at a mega 90.2%.
• Their slippages have radically decreased from Rs. 16,525 Crore in Q3FY20 to a paltry Rs. 237 Crore in Q3FY21. Their persistence on this front is worthy of praise.
• The talk of the town or the key element that has sent the stock price on a rally off the charts is that they have reported proforma Gross NPAs and Net NPAs of 5.44% and 1.81% which are in close proximity to the Gross NPAs and Net NPAs figures i.e. 4.77% and 1.23%.
• Everybody was taken aback by this. It goes to show that SBI has been able to overcome the detrimental impacts of the pandemic, thereby bucking the trend from the recent RBI report which stated that bad loan ratio of banks in India could rise by 6% to 13.5% under the baseline stress scenario.