Rating: Buy; SBI guides 12-14% credit growth

State Bank of India’s Q4FY23 earnings stood strong at Rs 166.9bn, with an annualised return on assets (RoA) of 1.23%. This performance was driven by robust business growth, improved net interest margin (NIM), significant ‘other income,’ and well-managed credit costs. The bank witnessed impressive loan and deposit growth of approximately 4.6-5.0% q-o-q, surpassing expectations, while net slippages declined. For the FY2023, SBI achieved a commendable RoA of 96 bps and a return on equity (RoE) of 19.4%. Despite a notable 16% y-o-y growth in gross advances, SBI strengthened its CET-1 capital by 33 bps to reach 10.27%, primarily supported by robust profitability. Going forward, the bank intends to rely on internal accruals to support its envisioned credit expansion.

SBI has a strong retail franchise (both secured and unsecured loans) and is the key beneficiary of likely revival in corporate capex. Its competitive advantage in cost of deposits, coupled with an excess statutory liquidity ratio (SLR) and a favourable loan mix, positions the bank well to maintain strong NIMs in the future.

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With net non-performing assets (NPAs) at 67 bps, a minimal restructured standard assets (RSA) book (with a 30% provision coverage ratio), and controlled incremental net slippages, we anticipate credit costs to remain favourable, estimated at 50 bps, for FY2024 and FY 2025. We estimate it to deliver strong RoA and RoE at 0.9% and 16.5% respectively for FY24E with marginal downtick in NIMs getting broadly offset by better treasury gains.

Maintain Buy with the target price revised to Rs 730, valuing the stock at 1.3x FY25E ABV and Rs 197 per share of subsidiaries. Key risks: sharp deceleration in credit growth, and higher than expected credit costs.

Strong and broad-based loan growth; guidance at 12-14% y-o-y: Net advances growth was strong at 4.6% q-o-q. Growth was broad-based across verticals with the corporate book up 5.9% q-o-q, retail book up 4.9% q-o-q, agri up 4.7% q-o-q and SME up 2.5% q-o-q. Within retail, Xpress credit saw robust growth of 5.5% q-o-q and 22.7% y-o-y and now comprises 9% of the overall loanbook. Around 95% of customers (83% are defence/PSU employees, and 12% are in top corporates) pose negligible risks. Overseas book growth is 19% y-o-y though it is calibrated at 10% y-o-y in USD terms. Bank has guided for 12-14% y-o-y credit growth in FY24.

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Deposits witnessed a significant q-o-q increase of 5%, primarily driven by a substantial rise in current account (CA) deposits, which grew by 24% compared to the previous quarter. Time deposits (TD) also experienced a growth of 6% q-o-q. However, savings account (SA) growth remained subdued, with a marginal 1% increase compared to the previous quarter and a moderated 5% growth on a y-o-y.

Fee income jumped 35% q-o-q due to embedded seasonality though it was flat on y-o-y basis. Recovery from two accounts remains healthy while the bank saw marginal loss in forex. Within core fee income, on a full-year basis, there was healthy growth in loan processing charges and cross-selling income.