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Sector Outlook: Positive
Robust growth path ahead
In the fourth quarter of fiscal year 2024, State Bank of India’s Net Interest Income reached Rs. 41,655 crores, a slight increase from the previous periods, and higher than the expected Rs. 40,500 crores. The bank’s Pre-provision Operating Profit significantly rose to Rs. 28,748 crores, showing strong quarter-over-quarter and year-over-year growth. However, provisions for potential losses increased to Rs. 1,610 crores from Rs. 688 crores last quarter, although lower than last year’s Rs. 3,316 crores. This led to an unexpectedly high net profit of Rs. 20,698 crores, much more than the predicted Rs. 14,100 crores. This profit includes a boost from an exceptional item last quarter worth Rs. 7,100 crores. Despite stable Net Interest Margins and decreased non-performing assets, the bank saw a slight decline in CASA ratio, indicating fewer low-cost deposits relative to total deposits. The bank also declared a dividend of Rs. 13.70 per share, continuing strong growth in loans across various sectors.
Key Concall Highlights
- The bank plans to increase its loan book by 13-15% in the fiscal year 2025.
- It aims to boost corporate deposits while keeping a strong position in savings deposits and reducing its cost-to-income ratio.
- The bank’s CET ratio is well above the regulatory requirement, supporting growth for FY25, but it remains open to raising more equity if necessary.
- The Chairman noted the bank has non-NPA provisions of Rs. 32,000 crores, ready to cover any extra provisions needed quickly.
- There are concerns about some banks not pricing the risks associated with long-term project financing properly, which could become problematic with delays.
- SBI is revamping its Wealth business, targeting Rs. 1 trillion in business within a year.
- An expected increase in employee costs by Rs. 500 crores monthly in FY25 is manageable as the bank has already set aside Rs. 13,000 crores last year, resulting in savings.
- Deposit costs have stabilised since the last quarter of 2023.
- The bank does not foresee significant changes in Net Interest Margins (NIMs) and aims to keep them stable.
- SBI has an international banking unit in Gift City, and its Mutual Fund group will soon be upgraded to a subsidiary and also based in Gift City.
- With current capital levels, the bank could expand its balance sheet by Rs. 7 trillion, growing 21% year-over-year.
- The bank’s strategy for loan growth includes nominal GDP growth plus inflation plus an additional 2%.
- It aims to keep a credit-deposit (CD) ratio of about 75% for its domestic operations.
- SBI anticipates strong business growth, driven by favourable economic conditions and aims to increase its market share in both deposits and loans, with digital products and services expected to drive this growth.
Valuation and Outlook
State Bank of India, the country’s largest public sector bank, exceeded expectations with a substantial rise in net profit and strong loan growth in the fourth quarter of FY24. Both net interest income and net profit surpassed market predictions. The bank also reported good growth in deposits, particularly in term deposits. Credit growth was robust across various sectors, and there was a notable improvement in asset quality and the slippage ratio. The bank expects to grow its loan book by 13-15% next fiscal year. Despite high interest rates, the bank managed to maintain its net interest margins (NIMs), which is a positive sign as it suggests that margins may improve as interest rates stabilise. The bank also noted that the cost of deposits has stabilised since the December quarter. Looking forward, the bank expects return on equity to drive credit growth and reported healthy growth in fee income. Despite challenges from competitors like non-banking financial companies and small finance banks, the bank’s impressive results support a positive outlook for its future growth.
