State Bank of India Q3 FY2022 Concall Summary

Key Takeaways

• Asset quality is the headline beat: Gross NPA fell to 4.5% from 4.9% QoQ, slippages are "hardly any," and the restructured book is showing early signs of repair rather than stress.
• Credit growth is finally turning: Working capital utilization jumped 900 bps, unavailed term loans fell, and January momentum was even stronger than Q3, setting up a visibly better Q4.
• NIM and NII were optically soft for explainable reasons: A ₹1,900 crore one-off IT refund inflated the prior quarter, and international loan growth (short-tenor, lower-yield) dragged the margin, but the bank can redeploy that book quickly.
• Management is deliberately under-promising on credit cost: The stated endeavor is to keep credit cost around current levels, but the tone and provisioning buffer suggest the bias is to beat that.
• What to watch next quarter: Whether the January credit momentum sustains through March, the first signs of behavior from MSMEs exiting restructuring moratoriums, and the decision on utilizing the ₹6,000 crore COVID provision pool.

Asset Quality: The Clean-Up Story

• Gross and net NPA both improved: Gross NPA declined 40 bps QoQ to 4.5%, net NPA stood at 1.34%, driven by fundamental changes in underwriting processes through large cycles.
• Slippages have collapsed: The nine-month slippage ratio is 1.16%, with Q3 at just 0.37%. Management describes current slippages as "hardly any," and whatever little appears is recoverable. SMA1 and SMA2 pools are at much lower levels than earlier in the year.
• The restructured book is behaving, so far: No unusual trend in slippages or SMAs from the ₹32,000 crore COVID restructuring portfolio, which carries ₹6,000 crore in provisions. Many MSMEs received moratoriums of varying duration (6 months to 2 years), so the real test comes after those end.
• One large retail chain is ring-fenced: The bank has exposure to the "much talked large retail chain account" and is "almost fully provided" for it, limiting downside surprise risk.
• Standard asset provisions rose for a specific reason: The ₹500-600 crore increase relates to one account under stress (though still standard) and some restructuring, not a broad deterioration.
• Recovery expectations are material: The bank expects to recover more than 20% of its ₹1,80,000 crore write-off pool over the next 2-3 years, and total recovery of about ₹8,000 crore for the full financial year.
• NARC provides a structured exit path: The first tranche to the National Asset Recovery Company has a gross value of ~₹20,000 crore, with phase one at ~₹11,000 crore, structured as 85% government-guaranteed security receipts and 15% cash.

Management: "But this book is very unusual because, this was a very unusual circumstances in which the restructuring has happened, it was essentially activated to the disruption in the cash flow as the cash flow gets repaired."

Credit Growth: The Inflection

• Utilization is the signal: Unutilized working capital limits fell from ~52% in September to ~43% in December, a 900 bps improvement. Unavailed term loans also fell 100 bps. About ₹2 lakh crore remains unutilized on the corporate book, leaving room for further drawdowns.
• January confirmed the trend: Credit growth in January was even stronger than Q3, despite Omicron, and the growth came early in the month, not in a last-fortnight rush, so interest income benefit will be visible in Q4.
• Corporate demand is broad-based: Traction appears "universal, very broad based," with core sector showing opportunities. Management expects much better credit growth in the coming financial year as industries operating at 100% capacity utilization begin augmenting capacity.
• SME strategy is shifting to quality: Focus is moving to cash-flow-based financing and better-quality lending through dealer finance and vendor finance, which should improve book quality over time.
• Express Credit is a retail growth engine: Growth is coming mainly from the salary package account base of 1.7-1.8 crore salary account holders, with penetration at only 25-26%. The bank dynamically revises salary packages to stay competitive.
• ECLGS book jumped 25% QoQ: Outstanding rose to ₹31,000 crore from ₹27,000 crore, driven by additional financing allowed under ECLGS 1.0 and extension to new sectors.
• Market share loss is deliberate: Management is mindful of price points and sectors, choosing not to lend indiscriminately, which explains apparent market share loss versus peers.

Management: "If at all it sustains then perhaps we will witness much decent credit numbers than what we have seen in the third quarter."

Margins, NII and the Rate Cycle

• NII decline was a one-off optical effect: NII fell QoQ because the previous quarter included a ₹1,900 crore IT refund. Excluding that, the underlying trend is stable.
• International loan growth is a temporary NIM drag: International loans have been growing faster than domestic for 2-3 quarters, including short-term financings, syndicated loans, and a new factoring activity. These carry lower yields, but the short-tenor book can be redeployed into better-yielding assets quickly.
• The balance sheet is positioned for rising rates: With 72% of the loan book linked to MCLR (49%) and EBLR (22%), rising interest rates are not a major challenge. Even the ~17% fixed-rate book has structures allowing rate revisits. The investment book's modified duration of 1.97 means the bank is "quite fine" through December.
• Yield on advances has come down system-wide: Management is mindful of underwriting price points and is not chasing growth at the expense of asset quality.
• Cost-to-asset is improving structurally: The ratio declined from 1.95% to 1.78% as balance sheet growth came without incremental cost, aided by digital adoption. Management expects further improvement.
• Deposit pricing strategy is selective: The bank increased term deposit rates by 10 bps last month but will not raise savings rates, preferring to target specific maturities in the term deposit bucket instead.
• Investment depreciation is mostly accelerated provisioning: Of the ₹1,490 crore depreciation, only ~₹60 crore is actual investment depreciation. The rest is accelerated provisions on security receipts maturing over the next 2-3 years.

Management: "We will not be resorting to increasing the savings rate, we will rather be looking at certain maturities in the term deposit bucket."

Digital and Operating Leverage

• YONO is scaling meaningfully: The app has ~4.5 crore registered users, ~30,000 savings accounts are opened daily, ₹40,000 crore of PAPL has been dispensed this financial year, and mutual fund sales via the app hit ₹3,300 crore (4-5x YoY). 70 lakh personal accident policies were sold, and agri gold loans and KCC reviews are now sourced through YONO.
• Digital underwriting is gaining traction: ₹4,000 crore worth of book has been underwritten through the digital medium in the current financial year, supporting the cost-to-asset improvement story.
• Current account decline is a growth signal, not a warning: Current account deposits fell QoQ as economic activity improves and people consume rather than hold money in current accounts. March typically sees a seasonal swell from government payments.

Capital, Provisions and ROE

• Capital is adequate for near-term growth: Tier I capital is above 12%, risk-weighted assets are at ~55%, and internal accruals are sufficient to support credit growth through FY23. With ~9% growth and profit clawback at year-end, the bank is comfortably placed. A capital raise decision will be taken in the next financial year if needed.
• ROE commitment is firm at 15%+: Management wants to keep ROE above 15% consistently over the long term and is not opposed to going beyond 15%, but decisions on whether to let ROE drift higher will be taken at the material point of time.
• Credit cost guidance is deliberately conservative: The endeavor is to keep credit cost around current levels, but management explicitly prefers to under-promise and over-deliver, so the guidance may prove conservative.
• COVID provisions are a potential P&L tailwind: The bank will decide this quarter on utilizing the ₹6,000 crore COVID provisions based on the evolving situation. The restructured book's historical probability of default is ~30%, but this cycle is unusual because stress was driven by cash flow disruption, and as cash flows repair, stress may reduce. Some customers are repaying early without using full restructuring benefits.

Dinesh Kumar Khara: "Our team is committed to deliver +15% ROE consistently over the long term."

Disclosure and Transparency

• Management declined several granular data requests: The bank does not disclose gross slippage numbers (unlike peers), incremental yield on the unsecured loan book, or tax spend as a percentage of OPEX. On slippages, management stated: "We have been given that slippages always and we want to be consistent on that. So, you should be respectful about that decision."
• Inter-quarter recovery figures are not tracked: When asked for gross slippage excluding inter-quarter recovery, management said they "really don't work out like that" but offered to ask the department to share separately if available.
• ECLGS disbursement detail was not provided: Management gave only outstanding balances (₹31,000 crore current, ₹27,000 crore prior quarter) but did not specify the quarter's disbursement amount.

Management: "We have been given that slippages always and we want to be consistent on that. So, you should be respectful about that decision."

Guidance & Commitments

Key Metrics