State Bank of India (SBIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to State Bank of India's Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjay Kapoor, General Manager, Performance Planning and Review, from State Bank of India. Thank you, and over to you.

[Foreign Language] and good evening, ladies and gentlemen. My name is Sanjay Kapoor, and I'm the General Manager of Performance Planning and Review Department of the bank. On behalf of the top management of SBI, I extend a warm welcome to all of you joining us today on SBI's Q3 FY '23 Earnings Conference Call. On the call today, we have with us our Chairman, Mr. Dinesh Khara; Mr. C.S. Setty, Managing Director, International Banking and Global Markets and Technology; Mr. Swaminathan J, Managing Director, Corporate Banking and Subsidiaries; Mr. Ashwini Kumar Tewari, Managing Director, Risk, Compliance and SARG; Mr. Alok Kumar Choudhary, Managing Director, Retail Business and Operations; Mrs. Saloni Narayan, Deputy Managing Director of Finance. To carry forward the proceedings, I request the Chairman sir to give a summary of the bank's Q3 FY '23 performance and the strategic initiatives undertaken. We shall thereafter straight away go to the question-and-answer session. However, before I hand over to Chairman sir, I would like to read out the safe harbor statement. Safe harbor provision. Certain statements in these slides are forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual outcome may differ materially from those included in these statements due to a variety of factors. Thank you. Now I would request Chairman sir, to make his opening remarks.

Thank you. Thank you very much. Good evening, ladies and gentlemen. Thank you for joining this analyst meet post announcement of the quarter 3 results of the financial year '23. The Indian economy has exhibited a remarkable resilience through 2022 in the face of the deteriorating global situations triggered by Russia, Ukraine war, monetary policy tightening and recurring base of the pandemic on the back of the strong financial and macroeconomic fundamentals. An important factor in the overall outcome has been the better response of the monetary and fiscal policies in sharp contrast to the aggressive tightening worldwide. The new year brings hope for continued momentum in India's growth story backed by the sustained strength in domestic demand. The World Bank has gone on record to say that the nation was well placed to steer through any potential global headwinds in 2023. The IMF has also said that India remains a bright spot and would account for the significant portion of the global growth in 2023. Several high-frequency activity indicators like vehicle sales, petroleum consumption, railway passenger traffic, RTO revenue collections, fertilizer sales have all shown improved Y-o-Y momentum in quarter 3 of financial '23. GST revenue also continues to remain robust with 15% higher revenue in quarter 3 compared to the same period last year. In financial year '23, credit growth has continued to grow in double digits. Incremental 9-month credit growth has doubled in financial year '23 compared to financial year '22. Credit growth in the system is currently at 14.9% as against 9.2% in last year. The good thing is that credit growth has gone based and not limited to a few industries or sectors. So we expect the pace to continue in the next financial year also, but some moderation can happen. At State Bank of India, we have always maintained that our long-term strategy is to build sufficient resilience in our balance sheet. So while we'll continue to pursue growth in core operating income, we have also been proactive in identifying any potential risk and build adequate provisions for the same. And our operating results for the quarter are aligned with our long-term strategy. I'm pleased to announce that for the second quarter in running, we have again posted our highest ever quarterly profit at INR 14,205 crores. Our business growth numbers are strong. And in terms of asset quality, our gross NPAs have dropped to its less level in more than 6 years. Let me now give some color on the bank's number for this quarter. Net profit for the quarter increased by 68.47% Y-o-Y to INR 14,205 crores, while operating profit at INR 25,219 crores, increased by 36.16%. ROA of the bank for the 9 months period improved by 23 basis points on Y-o-Y basis, and it stands at 0.87% and ROE improved by 458 basis points on Y-o-Y basis, and it is at 18.59%. Most other core profitability metrics have also improved over previous year as well as sequentially. Net interest income increased by 24.05% Y-o-Y on the back of improvement in yields and continuing credit offtake. Domestic NIM also improved by 29 basis points Y-o-Y and 14 basis points sequentially. Noninterest income grew by 32.22% Y-o-Y. Operating expenses increased by 16.69% as we have started building provision for the wage revision, which has fallen due from November '22. Other than that, our overhead expenses as well as staff costs are within control and our cost to asset continues to remain among the lowest in the industry, reflecting our efforts to build a long-term cost efficiency. On the business front, the growth momentum in domestic credit offtake has continued in this quarter also with growth coming from all segments. Domestic advances grew by 16.91% Y-o-Y, headline by retail personal advances, which grew by 18.10% Y-o-Y and corporate segment, which grew by 18.08% Y-o-Y. SME and Agri advances also posted double-digit growth at 11.52% and 14.16% Y-o-Y, respectively. Our personal retail loan book, excluding housing segment has crossed the milestone of INR 5 trillion. Domestic deposit grew by 8.86% Y-o-Y, driven by growth in savings in deposits and term deposits. Our foreign offices have continued to perform well with good growth in advances as well as deposits. Coming to asset quality. We continue to post improving outcomes. Our gross NPA has dropped below INR 1 trillion and stands at INR 98,347 crores. In terms of ratio, our GNPA has come down by 136 basis points on a Y-o-Y basis and stands at 3.14%. Our net NPA ratio has also declined by 57 basis points and stands at 0.77%. Slippage ratio for the quarter stands at 0.41%. Consistently improving asset quality is also reflected in our credit cost, which is at 21 basis points for the quarter and is down by 28 basis points on Y-o-Y basis. On the restructuring front, our total exposure in the COVID resolution plan 1 and 2 stands at INR 26,035 crores, as at the end of quarter 3 of financial year '23. The restructuring book has behaved well with almost around 10% of the current exposure falling under SMA1 and SMA2. We are holding sufficient additional provisions against the restructured account. The bank remains well capitalized, and we expect that our internal accruals will dedicate to take care of the normal business growth requirements. Our capital adequacy ratio without adding profit for the 9 months stands at 13.27% and CET ratio at 9.26% are well above the regulatory requirements. Digital continues to be an important acquisition engine for the bank across assets as well as liability products. During the quarter, we have sourced 64% of the savings bank accounts and 41% of the retail accounts -- retail asset accounts digitally through YONO. Our subsidiaries have also consistently performed well and continued to create significant value for all the stakeholders and most importantly, for the customers. Most of our subsidiaries are leader in the respective segments. We will continue to nurture these subsidiaries and see them creating value for their own shareholders and as well as the shareholders of SBI. Now before I conclude, I thank you for your continued support to the bank. We consider the privilege to be able to contribute towards the growth of our economy. We remain committed to reward your trust in us with superior sustainable returns over the long term. I wish everyone good health and very happy weekend. The floor is now open for your questions. Thank you.

[Operator Instructions] We have our first question from the line of Mahrukh Adajania from Nuvama.

Sir, a couple of questions. Firstly, the write-offs are slightly higher this quarter. So if you could explain and also on trading gains, the -- I mean, the profit -- the treasury bid, why does it look so high this quarter? So these are my first 2 questions, and then I have 1 more.

Yes, write-off is in the normal course of business. It is nothing very unusual. I think it is about INR 10,000-odd crores. It's a write-off amount. And it is in the normal course of business. So nothing very unusual.

So it was INR 3,000 crore last quarter, right?

Yes. I think normally, we undertake write-offs towards the third quarter and the fourth quarter. So that is why it has -- this kind of trend has changed this year, and it was not there in the past.

On the treasury part.

Yes, on the treasury part.

On the treasury part, Mahrukh, it also includes some amount of write-back of the MTM because the MTM requirement has come down, mark-to-market losses have come down. So that is getting reflected in the treasury account.

Got it. Sir, and in your exposure to a large group in press, you've made some comments that is 0.86% of total exposure, but what is the total exposure because we get to see only your gross advances so -- and your partial...

At 0.88% of our loan book, which is INR 31 lakh crores and odd.

Okay. Okay. Got it. And this includes all the sanctions across all offices?

It's outstanding exposure across all offices.

Outstanding. Okay. Okay. So -- but sir, you wouldn't talk about your sanctions?

I think as of now, what is material is that only.

Okay. But if we can get up because like PNB disclosed their sanctions, right? So...

It is there and normally, we don't entertain questions relating to a particular account because there's a customer privacy issues involved.

Okay, sir. Sir, and if I can squeeze in just 1 last question. What do you think is the outlook on deposit growth and therefore margins, right? You've done -- your operating performance has been phenomenal. Deposit growth is not great, but you don't even need it because you have been running the lowest CD ratio amongst the lowest CD ratio in the industry on the domestic front. So what is the outlook on deposit growth and therefore, margins from here on? When do you -- do you think margins sustain at the 3Q levels? Do they drop? When do they drop? How does deposit growth accelerate?

As of now, we are having excess SLR to the tune of about INR 3.2 trillion. And we are very mindful that -- I've said it in the past also deposited the franchise, and we always remain mindful of the depositors interest. So in the buckets where we feel that we can attract the retail deposit, we are ensuring that we must be in line with the market trends. And that's the policy which we have adopted, and we'll continue to follow that. So based upon that, since you are also acknowledging the fact that we still have one of the lowest credit deposit ratio. Depending upon the need, we will be calibrating our interest rates. But I would also like to mention that our -- about 74% of the loan book is linked to either EBLR or MCLR. And out of this 74%, I would say about 40% would be on account of MCLR. And if at all, we increase the deposit interest rates, that will also give us elbow room for increasing the MCLR and which will help us in ensuring that the NIM should not get adversely affected.

Okay. So more or less stable NIM from hereon?

I expect that hopefully.

We have our next question from the line of Rahul Jain from Goldman Sachs.

Just a couple of questions. Number one, on the provisioning bit, we've seen a jump in standard asset provision in this quarter. And I think outstanding standard asset provisions are about INR 23,000 crores. So just wanted to understand why are we carrying such a large provisions here? Is there an element of contingency also that has been factored in here?

Yes, there is one-off courses when our loan book has grown, that has also led to an increase in provisioning because we are required to maintain standard provisions for the standard assets also. Secondly, of course, we are always very mindful of, if at all, we get to see any kind of a stress on the ground in any of the accounts. We do make some provisions which are floating in nature, and much of it will depend upon how the account -- what is a trajectory of the account and accordingly, we crystallize those provisions. So partly it is on account of our increase in the loan book and partly it is on account of our policy in terms of making the provisions proactively as against after the occurrence of the event.

Sir, this translates into roughly about 75 to 80 basis points of the loan book. So fair to say 30 to 40 basis points may have been built just for any future contingencies.

Yes, it would be like this. As I mentioned that if at all we get the visibility of any kind of a stress in our loan account, we rather believe in making .

I mean it is across the sector.

It is across the sector. Yes, it is not the corporate book only.

And it is the standard asset provision.

Yes, yes.

Sir, just on this provision for employees of INR 5,429 crores in this quarter. So what is the element of one-off here? Or this is going to be the recurring quarterly number?

No, we have a provision relating to our wage revision, which is about INR 996 crores is on account of that. And other than that, the provisions which have been made based on the astute assessment for our retirement liabilities, et cetera. So it is as per that, yes.

And this INR 996 crores, would you be making this every quarter, additional provisions?

On an average about it is for every month, it comes about -- almost about INR 500 crores every month. That will be the provisions which will be required to meet the liability relating to the wage revision.

Sorry, I missed out on the number. Can you please repeat?

Sorry? No, about INR 996 crores is something which we have provided for. And this is a provision for 2 months' time. Okay? And apart from that, about INR 500-odd crores? So every month, INR 500 crores will be the provision for the wage revision. And apart from that, some provisions, we have made for on account of the pension and gratuity liabilities, which is essentially on account of the discount rate and also as for the recommendations of that jury.

Sir, just 1 more question. Again, going back to the exposure that is, of course, in the public discourse. Can we get some more color as to the exposure...

I think towards the end of this meet, I mean, after I complete all your answers, I will make some statements, comprehensive statement relating to the exposure to that particular group.

We have our next question from the line of Ashok Ajmera from Ajcon Global.

Compliments to you, Khara and the entire team. I think one of the mind blowing profit, actually one of the highest, I think, operating profit in last maybe 4, 5 years, even in the net profit. Given the asset quality has improved tremendously, overall performance of the bank is so robust that even if there is any problem concerning to this large group which may not be even in the top 15 group of your -- as far as the exposure is concerned, I don't think the bank like State Bank of India will have any kind of problem when your operating profit itself is INR 26,000 crores per quarter. So having said this, sir, we will wait for your final comments on the total overall exposure to the group fund based, non-fund based, bond equity, foreign bonds which you have assured that you will give the statement at the end of the question-answer session. Having said that, sir, I have some couple of data points and some information. We have gone slow in this quarter on the corporate credit. So what is our basically ratio, which will settle down if you take the whole FY '23, by March, the composition between the RAM and the corporate?

I think it will be more or less where it is in the month of December. It will be a marginal movement for many of the segments, but it would be more or less on .

All right. Sir, if we go on the income side, the other income has gone up to INR 11,467 crores from INR 8,870 crores in the last quarter. And I think the major part of the income from, I mean treasury, the profit. The profit and the sale and revaluation of the treasury is INR 2,937 crores as against INR 457 crores in the last quarter. Whether this trend is going to be continued in the coming quarter, January, March also? And how do we see -- now with the interest rate, almost speaking up maybe another 25 basis points, where do you stand on the treasury side, sir?

So as far as the treasury side is concerned, there are 2 components. One, of course, is the improvement in yield on investment. And secondly, in this quarter, we have booked some MTM gain, which is about INR 2,200-odd crores, which is more of a write-back because we -- if you recall in the first quarter, we had made a MTM loss which was about INR 7,500 crores. Also that about -- we had some MTM gains last quarter also, which we did not book. For the reason that we had seen the yields were somewhere it has again shooted. So that is the reason why we did not book at that stage. But now we have seen that yields are now coming within the range and that's the reason why we have done this. So I think that is the major reason when it comes to the kind of movement you're observing in the treasury net results. Other item is we had some derivatives, which are again we have done. So some loss components are on those derivatives, so that is also booked in that particular head.

Sir, our credit cost and cost-to-income ratio both have improved tremendously. Do we see this trend to continue? Like cost to income coming down and the credit costs, both are to come down even at this low level in the coming quarter?

I think for the quarter ending March '23, I can say for sure. And I think we will be in a position to give some guidance as we move further, depending -- it is also be the function of how the -- I mean economy -- in general macro economy will be moving. But nevertheless, as of now, it looks like that for the quarter ending March '23, we should not be -- we should have a similar kind of a credit cost.

My last question in this round, sir, is on PLI. How much provision on the -- on PLI the bank has made for the 9 months?

PLI provision would be in line with what the number is likely to be -- the cost is -- it could not be very significant amount. And it could be a very small number, which is there. So it is for 5% increase, it is 5 days salary and for 10%, it will be 10-day salary. So it would not be very significant component.

Okay, sir. But we have provided for -- I mean, we already made the provision for this.

That's always there. No, we have so many pockets where we are keeping so much of provisions. I mean non-NPA provisions are about INR 33,000 crores.

Yes, sir, I think the concern of the market is absolutely unfounded. But anyway, all the best to you, I think the sooner or later the market will understand the economics of the bank and the financials.

We have our next question from the line of Anand Dama from Emkay Global.

Sir, we've heard about a lot of resolutions in the pipeline right now, like SKS Power and all. Do we have any resolution pipeline, particularly for the fourth quarter and over next 6 to 9 months that we can talk about?

So there are so many resolutions in the pipeline, such as -- but it capitalized because it is always a process which is carried out in all these matters and how much time will be taken at each of the step is actually at times is not very certain. So that is one of the reasons why saying it so much of a certainty that in the last quarter, we'll have so many resolutions coming through as it will not be in order for us. But nevertheless, I'll ask Mr. Tewari, if at all, he can give some color in this direction.

Many cases, which are at final stages, but we can't be sure in and various legal proceedings. It's tough to give a timeline or date. I'll give some high-level number. I'll give you a high level number going forward in the call.

Sure, sir. That would be great. Sir, secondly is the outlook on margins. I think this quarter also we have seen a meaningful margin uptick. We still have some room in terms of earlier improvement. And as you said, that MCLR also would increase as basically the cost increases.

I would suggest that let us keep as a guidance part is concerned, I would like to keep the guidance at this level and if at all, there will be room for improvement, we'll certainly ensure that. Incidentally, this NIM also, it would have been even better. But because in the last year, we had the income tax refund because is about INR 2,400 crores. As against that, this quarter -- this year, we have got income tax refund, which is just about INR 800 crores. Interest on income tax refund. So that is the other reason. It will have an impact about 6, 7 basis points overall. But yes, of course, if at all, we will -- if at all, we do apple-to-apple comparison perhaps the impact. I mean change can be even better. So this is just for information. Yes.

Yes, sure. I think that should also play out in the fourth quarter, right?

Yes. Hopefully, let's hope for the best.

We have our next question from the line of Abhishek Murarka from HSBC.

Actually, just 1 request when you make your comment on the large conglomerate. If you could clarify whether this INR 27,000 crores includes loans, LC/BG, non-fund based and overseas loans. Sir just at the cost of repetition just requesting that. And also, if you could also clarify that if there's a refinance opportunity given that...

I missed out the second one.

The second one is if there's a refinance opportunity given that your large exposure framework wise, there is a lot of headroom and the group like several projects appear to be creditworthy, then would you do it? So just these 2 things, if you could cover in your comment maybe now or later, whatever, that would be very useful.

I think second question I can answer you right now. That is, if at all, any refinance opportunity is always evaluated on merits. So for me to say that anything right now will not be an order and as and when any such demand will come. We have not received any such demand. So for any such requests, if at all, any such request will come, it will be evaluated on our merit. And while evaluating, we are always very mindful in terms of the sake of the promoter or of the entrepreneur and the kind of risk which it is. And based on that very comprehensive assessment only views are taken. It is not merely simply 1 request comes and we grant the facilities.

Understood, sir. That's useful. And my second question is actually on your international loans. Now sequentially, there has been I think a couple of quarters back, we were talking about being a little aggressive there and looking for opportunities outside. What is the outlook there, sir? Next 1 year, are you looking to grow that maybe to a higher percentage of loans or what's the strategy?

See, in terms of dollars, our international book has grown by about 9.15%. And when it comes to rate -- when we convert it on the rate, it looks like that it has gone as was 20% plus. But the factor is dollar -- in terms of dollar, it is just about 9.15% and now our focus is for improving the NIM as far as our international book is concerned. So that is the reason you might have observed that our NIMs have improved significantly. We've moved towards 1.67% as far as our international NIMs are concerned and it is on a quarter-on-quarter basis, an improvement of about 23, 24 basis points. So that's how it is. And when it comes to the composition of the international book, which is essentially local lending in those markets, which is not necessarily to the Indian corporates only. It is even to local corporates, and we are participating in the local syndications. And also when it comes to India-linked loans, we've majorly ECBs and that ECB is to either AAA or AA-rated entities only. And that's how this whole complexion is. Apart from that, large component is a trade finance. Trade finance book, wherever we are getting the margins, we are participating on the platforms. And whenever we're in a position to get the margins, there we are actively involved.

Sure. Sir, margins in the international book should hold up around current levels?

I hope that we should be in a position to maintain at this level, if not improve.

Perfect, sir. And just 1 question, I squeeze in on SME. Now for several quarters that book was not really growing. And this quarter, there is about, I think, 10% Q-o-Q jump in that book. So if you could share what has changed? Is it a change in product, geography, customer focus? What has really changed over there and whether this is sustainable?