SBI Share Price: ICICI Securities highlights key pointers - What stock market investors must know

ICICI Securities hosted SBI’s Swaminathan Janakiraman, Dy. Managing Director and Misal Singh, VP – Investor Relations. They highlighted that the NII story is playing out well as NIMs further gained traction benefitting from incremental higher growth in retail credit (the corporate book actually shrunk QoQ), lower NPL drag (interest on pro forma slippages not reversed) and a sharp cut in deposit rates. Interest expenses grew by only 2-3% despite deposit growing by 14-15%. NIMs are more likely to settle at current levels over the medium term - going forward, deployment of surplus liquidity and resolutions may offset any downward pressure on NIMs. During the past three years as performance was impacted by the corporate stress cycle, RoA was relatively subdued compared to its historical long term RoA average of 0.8-1.0%. Inferring from the operating metrics trend, the bank seems to be gradually moving towards the long term RoA range in the immediate and surpass its long term average RoA in near to medium term.

Ground reality and collection efficiency:

Given that a large part of SME business is unorganised and has no access to formal credit lines, the perceived pressure in the SME segment is not reflected in industry-wide banks collection efficiency numbers. With respect to SME at the industry level, 50% SME businesses are self-financed, 35% finances from unorganised sources or through microfinance route while only 15% of SME financing is done via banks.

On YONO capability and analytics:

YONO is not just a digital bank, but a financial superstore. Combined with an analytics team and with capability of YONO, the bank is able to offer both upsell (top up on existing loan, balance transfer on home loans) as well as cross-sell. Product per customer is 2x on an average. This is because the bank has a customer base in excess of 450 mn and hence product per customer on an average comes out to be very low. Today, the bank is using a lot of manpower to reach customers in tier-2/3/4 cities. With digitisation, banks should be able to reduce costs and attain financial inclusion at a larger scale.
In digital partnership, banks are open to either partner or collaborate with fintech. It sees fintech as a partner rather than a competition. On digitisation, the share of digital transactions stands at 93% and is still improving. The power of digitisation is immense. For example: During the past 6- 7 months, it sourced US $1 bn worth of personal loans digitally, which could have otherwise taken long to be sourced via branches. YONO will gain in scale and capacity over the next 2-3 years and then at an appropriate stage and time will engage with investors for value discovery.

On Credit Profile:

Retail segment has been a key loan growth driver over the past two years and will continue to drive the overall credit growth. Credit profile in the retail segment too is comforting 94% of Xpress credit customers are government/defence employees whose salary levels have not been hit due to the pandemic. Also, in the home loan segment, 50% customers are government employees, 20% are from well-rated corporates and 30% are self-employed customers with high creditworthiness. As of now, approvals and credit enquiries are above pre-Covid levels on the retail front. SBI is approaching salary-backed loans in a focused but a risk mitigated manner. It expects overall loan growth to remain around 8% with some upside risk. Retail loan origination via YONO in H1FY21 was 38%. Bank would like to get back very strongly in agriculture and MSME.

On Asset Quality:

Collection efficiency of Q2 FY21 is 97%, payment received over EMI dues. Estimated slippages of Rs 200 bn for second half of FY21, provision coverage in corporate (legacy) book is 88% against historical LGD of 55%. They think they should have lower burden on credit cost provisioning in the second half of FY21, more a factor of how the economy evolves.

On Capital:

Management said capital is sufficient to manage near-term growth as plough-back of profits further shore up capital adequacy.