BUY on State Bank of India - Lesser-than-anticipated pain in store? - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

SBIN's 2Q earnings were ahead of estimates, led by lower-than-expected provisions. The bank reported a sharp improvement in collection efficiency to 97% in 2Q. These have been common themes across most of our coverage this quarter. While we have reduced our slippage and provisioning estimates, they remain conservative. Despite the recent AT-1 and Tier 2 capital raise, we believe it will be prudent for SBIN to raise equity capital. SBIN has one of the strongest deposit franchises; this, along with inexpensive valuations, drives our BUY rating (SoTP value of Rs 317).

Asset quality and collections: Adjusted for the impact of the SC order, GNPAs and slippages would have been 5.98% (+44bps QoQ) and 3.04%. SBIN reported a sharp improvement in collection efficiency to ~97% (excluding agri loans) in 2QFY21. The bank's performance on this front is similar to that of several private banks with better asset quality track records. The bank expects ~Rs 414bn of slippages (~83% of FY20 levels) and ~Rs 195bn of restructuring (~85bps) in FY21E. Even as we have reduced our FY21E slippage estimates to 2.8% ann., they remain conservative.

Provisions fell 23/19.1% to Rs 101.2bn, led by a sharp 49.1/40.4% fall in NPA provisions to Rs 56.2bn. The bank held COVID-19 related provisions of Rs 70.9bn (31bps of loans) including Rs 6.5bn and Rs 31.9bn towards restructuring applications received and accounts that would have slipped in 2QFY21 respectively. In terms of the proportion of COVID-19 related provisioning, SBIN ranks much below several large private sector banks. While we have reduced our credit costs estimates, in tandem with our GNPA estimates, to 1.6% over FY21-23E.

YoY deposit growth was strong at 14.4% and was led by CASA growth of 15.1%. SBIN remains one of the best-placed banks in terms of deposit traction. Its CRAR/Tier 1 rose 132/55bps QoQ to 14.7/11.9%, as the bank raised ~Rs 199bn. We continue to believe that it will be prudent for SBIN to strengthen raise equity capital, especially if credit growth picks up meaningfully.

Shares of STATE BANK OF INDIA was last trading in BSE at Rs.218.7 as compared to the previous close of Rs. 207.05. The total number of shares traded during the day was 12147694 in over 89752 trades.

The stock hit an intraday high of Rs. 220.95 and intraday low of 214.5. The net turnover during the day was Rs. 2651554964.

Source : Equity Bulls

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