SBI: Q3FY10 Result Update

Interest income grows by 14% YoY in 9mFY10, 4% YoY in 3QFY10.

Provisions triple for the third quarter as the bank provides for incremental slippage and complies with RBI’s provisioning mandate.

Cost to income ratio increases from 47% in 9mFY09 to 52% in 9mFY10 on the back of additional hiring.

Gross and net NPAs rise to 3.1% and 1.9% from 2.5% and 1.4% of advances respectively in 9mFY09.

Capital adequacy ratio at 13.8% (as per Basel II) at the end of 9mFY10.

Board declares an interim dividend of Rs 10 per share.

Having leveraged on its strength in low cost deposits (CASA) at a time when most banks are grappling with higher interest rates, the excess liquidity seems to have been a bane of contention for India’s largest bank this quarter. SBI made an appreciable effort to increase its market share in both deposits (16.1% in 9mFY10) and advances (16.9% in 9mFY10). The bank tapped its relationships with large corporates as well as retail customers, to grow its deposit base. However, not all of it could be deployed profitably. As a result, the bank witnessed nearly 60 basis points (0.6%) drop in net interest margins. In the retail segment, home loans (comprising over 29% of the bank’s retail advance book) grew by 30% YoY, auto loans by 32% and personal loans by 31% YoY in the last 9 months. In home loans, the bank has an average ticket size of Rs 1.0 m, making the most of its priority sector lending. Also, 98% of the home loan borrowers were first time buyers.

While the bank’s advance growth has been higher than our estimates, its net interest margins are well in line with our estimates for full year FY10.


The bank’s fee income showed a healthy growth of 46% YoY, bringing the fee to total income ratio to 22.5% in 9mFY10 from 17.6% in 9mFY09.

The natural attrition has led to a sharp decline in the cost to income ratio of the bank from 55% in 1HFY08 to 46% in 1HFY09. However, as the bank will be recruiting 25,000 new employees in 2HFY09, we see this ratio going up marginally in the near future.

SBI did feel the heat on its NPAs in the past 12 months with net NPAs rising to 1.9% of advances from 1.4% in 9mFY09. Also, the bank does foresee some delinquency risks in its SME and retail loan books going forward. The provision coverage ratio stood at around 50% in 9mFY09 and the bank needs to bring it up to 70% by 1HFY11. SBI also revealed that of its Rs 168 bn of restructured assets about 6% have turned into NPAs so far and it expects about 10% of the restructured assets to become incremental NPAs.

While the bank’s advance growth has been higher than our estimates, its net interest margins are well in line with our estimates for full year FY10.


Being the bank with the largest franchise, SBI has been receiving Rs 50 bn of low-cost savings deposits per month in FY10. The increase in low-cost savings deposits brought excess liquidity to the bank’s books and this cost it as much. The carrying cost for this was about Rs 2 bn while the opportunity cost was about Rs 6 bn. SBI believes that even if RBI increases CRR (cash reserve ratio) by 0.5% in its monetary policy review, its liquidity will reduce by Rs 60 bn, hardly impacting its average liquidity of Rs 750 bn. In this situation, the bank does not see its lending rates increasing in the next six months.

At the current price of Rs 2,093, the stock is trading at 1.5 times our estimated FY12 standalone adjusted book value. SBI’s balance sheet growth continues to remain ahead of the industry due to its widespread rural and semi-urban presence. Although we anticipate lower growth and muted margins in the near term, the bank, given its balance sheet size, penetration and the possibility of merger with associates remains a preferred play for the long term.