State Bank of India Q1 FY2024 Concall Summary

Key Takeaways

• Record profit, but NIMs are compressing: Net profit surged 178% YoY to ₹16,884 cr, yet domestic NIM contracted 27 bps QoQ as deposit costs caught up with rate hikes.
• Credit growth is broad-based and guided at 15%: Domestic advances grew 15.08% YoY, with retail, corporate, SME, and agri all in double digits; management expects to sustain this pace in FY24.
• Asset quality is the best in over a decade: Gross NPA fell to 2.76%, net NPA to 0.71%, and the provision coverage ratio stands at 91.41%, giving the bank a strong buffer.
• The international book is in deliberate pause: Management is cherry-picking risk abroad, prioritizing margins over volume, and expects elevated international NIMs to moderate through the year.
• What to watch next quarter: Whether the 15% loan growth guidance holds as the base effect normalizes, the trajectory of domestic NIM stabilization, and any visibility on the final wage hike provision.

Profitability & Margins

• Record profit driven by non-interest income: The 178% YoY net profit jump to ₹16,884 cr was powered by a 421% surge in non-interest income, mainly from MTM write-backs and derivative gains, while core fee income grew a steady ~4%.
• Domestic NIM improved YoY but fell sharply QoQ: Domestic NIM rose 24 bps YoY to 3.47%, but the 27 bps sequential drop reflected the lagged pass-through of deposit rate hikes; management expects to retain NIM at this 3.47% level.
• Cost of deposits should stabilize here: The Q1 increase came from term deposit renewals repricing to last year's rate hikes; with no further policy rate increase expected, management sees deposit costs stabilizing around current levels.
• Operating expenses rose on wage provisions: The 23.68% YoY increase in opex reflects the bank building provisions for the wage revision due from November 2022; negotiations are ongoing and the bank has provided for a 10% increase so far.
• International NIMs are unsustainably high: International margins rose significantly as reference rates moved and the bank focused on margins over volume; management explicitly stated these will moderate and not remain at current levels for the rest of the year.

Khara: "Unfortunately, people are quoting for term loan they are quoting T Bill rates. I don't want to venture into such kind of luxuries if I may say so, more so when if at all people don't see interest rate risks and if I see interest rate risks, I would rather be cautious than to be sorry."

Loan Growth & Pipeline

• Domestic advances grew 15% YoY across all segments: Retail personal grew 16.46%, corporate 12.38%, SME 18.27%, and agri 14.84%; the bank expects to sustain ~15% loan growth in FY24.
• Corporate pipeline stands at ₹3.5 trillion: ₹1.2 trillion is already sanctioned and ₹2.3 trillion is in the pipeline, with the private sector component (₹2.7 trillion) significantly larger than public sector; growth is coming from renewables, infrastructure, roads, and NBFCs.
• Retail personal advances have a 17% CAGR track record: Management sees no reason this cannot continue, supported by home loan sanctions up 15% and 140 RACPCs added last year to handle retail growth.
• International book is deliberately slow: The bank is cherry-picking risk abroad, operating like a corporate bank with variable-rate assets and liabilities; India-linked loans are lower partly because oil companies have not drawn revolving lines.
• Home loan market share loss is accepted: Management acknowledged losing share but will not cut rates to chase growth, prioritizing sustainable pricing over quarterly market share.

Khara: "I'm not into that. I'm accountable to each one of you quarter after quarter, and for many many more years. So, my life does not come to an end after one quarter."

Asset Quality

• Gross NPA at a decadal low of 2.76%: Net NPA fell to 0.71%, the slippage ratio was 0.94%, and credit cost was just 32 bps; the provision coverage ratio including AUCA reached 91.41%.
• Slippages were concentrated in three segments: Total slippages of ₹7,659 cr split across retail personal (₹2,400 cr), agri (₹2,300 cr), and SME (₹2,400 cr); recoveries in July already pulled back ~₹700 cr, ~₹300 cr, and ~₹600 cr respectively.
• Restructured book is well-provided: The COVID resolution plan exposure stands at ₹22,666 cr with about 11% in SMA 1/2; the bank holds a 30% provision against these, far above the RBI requirement of 5-10%.
• Rural NPA is improving but still elevated: The rural book, historically stagnant, is now growing 12-13% with a focus on quality; NPA has reduced from ~15% to 11%, and management targets single digits this financial year.
• AUCA recoveries are case-by-case: Management declined to give any aggregate recovery estimate from the ₹1,76,000 cr AUCA pool, stating recoveries depend on available security and must be assessed account by account.

Deposits, CASA & Funding

• CASA ratio has structurally reset lower: Pre-pandemic CASA was ~40%, rose to ~44% during the pandemic, and has settled at ~42-43% post-pandemic; management noted that many banks' "savings accounts" are effectively term deposits from a cost perspective.
• Current account market has changed permanently: Government accounts, formerly ~55% of the CA market, moved to SNA/CNA/just-in-time systems, reducing float; SBI has pivoted to focus on CA from trade, commerce, industry, and trusts, and was growing faster than any other bank in this segment by March, June, and July.
• Deposit growth guidance is 12-13% for the system: SBI expects its own deposit growth to be on similar lines, with credit growth at 14-15%; the bank is not chasing deposits at any cost.

Khara: "Our effort is going to be CASA in the real sense of the word, lowest possible cost of resource and I am quite confident that the initiatives that we have taken will further enhance or strengthen our position as far as CASA is concerned."

Digital, Distribution & Competition

• YONO is now open to non-SBI customers: The "YONO for every Indian" launch lets other bank customers access the UPI journey on YONO; management sees it purely as a distribution platform and has no plans to spin it off.
• Digital sourcing is material: 63% of savings accounts and 35% of retail asset accounts are now sourced digitally through YONO; 87% of transactions are digital and 97.5% happen outside branches.
• Branch expansion is modest and deliberate: The bank will add about 300 branches this year but is more focused on deepening existing relationships and sweating its 22,000-outlet, 78,000-CSP franchise.
• Competition stance is confident on retention: Management highlighted that barely 1,000 people leave SBI annually, contrasting this with private-sector churn, and pushed back on the "behemoth" label applied to a merged competitor.

Choudhary: "if you see State Bank of India, what is the number of people who leave us. Every year hardly 1000 people may be leaving us. Right. What is the attrition in the market, the people who are going to serve, the marketing people, the servicing people, I don't want to quote the numbers, right. But if you can find that there is a behemoth, you used the word behemoth I think that word suits us more." [7-8]

Subsidiaries & Capital

• Capital adequacy is comfortably above requirements: CAR stands at 14.56% and CET 1 at 10.19%, sufficient to support an additional ₹7 trillion in loan growth.
• Subsidiary value creation will continue: Management will keep nurturing subsidiaries to create value for their own shareholders and for SBI shareholders, but the AMC business IPO is not on the cards as of now.
• Cross-sales growth is targeted at 30%+: Management expects this year's growth in cross-sales to be not less than 30%, and rather more.

Guidance & Commitments

Key Metrics