State Bank of India Q3 FY2023 Concall Summary

Key Takeaways

• Record profit, broad-based growth: Net profit hit a third consecutive quarterly high of ₹14,205 crore, driven by 16.91% YoY domestic credit growth across all segments and a 29 bps YoY NIM expansion.
• Asset quality at a multi-year best: GNPA fell below ₹1 trillion for the first time in over six years, and the credit cost dropped 28 bps YoY to just 21 bps.
• Proactive provisioning builds a buffer: Standard asset provisions rose partly on loan growth and partly on a policy to provide before stress events occur, with ~30-40 bps of the loan book held for future contingencies.
• SME pivot is working: The SME book jumped ~10% QoQ after a year of structural investment, with a target of ₹4 trillion by March '24 now within reach.
• What to watch next quarter: Whether the 14-16% loan growth guidance holds as management flags possible moderation, the pace of NPA resolution in a shrinking stock, and any clarity on the large conglomerate exposure beyond the disclosed 0.88% of the loan book.

Profitability & Margins

• NIM expansion with a caveat: Domestic NIM improved 29 bps YoY and 14 bps QoQ, but the gain was suppressed by ~6-7 bps because income tax refunds were only ₹800 crore versus ₹2,400 crore a year ago.
• Treasury tailwind partially realised: A ₹2,200 crore MTM write-back was booked this quarter, recovering part of the ₹7,500 crore MTM loss from Q1; the timing and amount of any further unwind depends entirely on yield movements.
• Wage provision begins: The bank provided ₹996 crore for two months of the wage revision effective November '22, implying a monthly run-rate of ~₹500 crore that will continue.
• Cost-to-income guidance deferred: Management declined to give a forward view, stating it depends on the macro economy and will only commit for the March quarter when it arrives.
• Stable NIM outlook: Management expects NIMs to remain stable from here, arguing that any deposit rate increase creates room to raise MCLR and protect the margin.

Khara: "In the buckets where we feel that we can attack the retail deposit, we are ensuring that we must be in line with the market trends. And that's the policy which we have adopted, and we'll continue to follow that."

Asset Quality & Provisions

• GNPA stock shrinks below a psychological mark: Gross NPAs dropped below ₹1 trillion, the lowest in more than six years, while the credit cost fell to 21 bps from 49 bps a year ago.
• Write-offs remain routine: The bank wrote off ~₹10,000 crore in Q3, describing it as normal course of business concentrated in the second half of the year.
• Restructuring book under watch: About 10% of the current restructured exposure sits in SMA-I and SMA-II, though management says sufficient additional provisions are held against it.
• Standard asset provisions are partly preemptive: The ₹23,116 crore standard asset provision pool includes a layer built proactively when any stress becomes visible, across sectors, not just corporate; management reviews this quarter-on-quarter and notes it may or may not crystallise.
• Recovery run-rate faces a shrinking pool: Recovery numbers look smaller YoY because the NPA stock has fallen below ₹100,000 crore, and each case now yields less despite similar effort; Q4 is seasonally stronger, with ₹3,000-3,500 crore expected.

Khara: "Partly, it is on account of our increase in the loan book and partly it is on account of our policy in terms of making the provisions proactively as against after the occurrence of the event."

Loan Growth & Segment Dynamics

• Broad-based domestic advance growth: Domestic advances grew 16.91% YoY, with retail personal advances and corporate both expanding ~18% and SME and agriculture posting double-digit growth.
• SME book transformation gains traction: The SME book jumped ~10% QoQ after a year of investment in structures, capacity, and new products including distributor finance, vendor finance, and a preapproved business loan on YONO; underwriting now uses GST data and a dedicated loan management system.
• Corporate rundown in telecom and power is organic: The decline reflects usual repayments, reduced utilisation in a couple of accounts, and some PSU and bond-related movements, not refinancing by competitors.
• Agri book being deliberately reshaped: With agri GNPA at 12.03%, the bank is shifting the mix: ~40% is now agri gold loan, and it is targeting high-value agricultural loans, agri-techs, and agri infrastructure; a ₹3 trillion target is set for FY24.
• International book prioritises margin over volume: International advances grew 9.15% in dollar terms, a pace management says is deliberate given the focus on improving NIM rather than chasing growth.

Khara: "It has become a continuous focus area. And also, we are very mindful in terms of quality of lending, and we have created a loan management system where we are having an adequate visibility in terms of the unstructured information through the GST and etc., etc."

Capital, Funding & Liquidity

• Capital adequacy is comfortable: CAR stood at 13.27% and CET-1 at 9.26%, both well above regulatory requirements; internal accruals are expected to fund normal business growth, with a rough assessment that current levels can support at least ₹7 trillion of loan growth.
• Market access remains strong: The bank raised ₹20,000 crore in infrastructure bonds at very competitive rates and expects the trend of containing the cost of repo rate to continue in Q4.
• Borrowings increase is tactical, not need-driven: Despite a low LDR and excess SLR, borrowings rose by ~₹60,000 crore; management described this as a market operation to evaluate all options and ensure the lowest cost of resources, not a response to a funding gap.
• Small savings scheme impact seen as manageable: Any deposit migration to small savings schemes is expected to have some impact but not enough to make a material dent in the banking system's deposit base.
• SLR expected to stay elevated: Management expects the SLR level to remain where it is for some time.

Khara: "And at 14.5 we have made some rough assessments, and it indicates that we can support the loan growth of at least 7 trillion."

Large Conglomerate Exposure

• Disclosed exposure is 0.88% of the loan book: Management stated that the group's outstanding loan exposure to the large conglomerate in question is well below the large exposure framework and represents 0.88% of SBI's total loan book as of December 31, 2022.
• Credit quality defended: The majority of loans are toward operating assets and completed projects generating cash; projects under construction are on schedule; all loans are secured by project assets with no unsecured facilities and no finance against a pledge of promoter equity; there is no record of any delay or default.
• Full picture remains incomplete: Management declined to discuss sanctioned but undisbursed amounts or overseas office exposure, citing customer privacy, and deferred a comprehensive statement to the end of the call.

Khara: "As far as we at SBI are concerned, our Group exposure is well below the large exposure framework, and the loan outstanding exposure stands at 0.88% of our SBI's total loan book as on 31st of December '22."

Guidance & Commitments

Key Metrics