Analyst Meet / AGM - Analyst Meet

28-May-2016, 08:29
State Bank of India conducted an analyst meet on 27 May 2016 to discuss the financial performance for the quarter ended March 2016 and prospects of the bank. Arundhati Bhattacharya, Chairman of the bank addressed the meet:

Highlights:

• The loan book of the bank increased 13% to Rs 15.1 lakh crore at end March 2016 over March 2015. The deposits of the bank moved up 10% to Rs 17.3 lakh crore at end March 2016.

• Bank has improved the domestic CASA ratio to 43.8% at end March 2016 from 42.9% at end March 2015.

• Bank has added 286 branches in the quarter under review, taking the total branch count up to 16784 branches at end March 2016. In FY2016, the bank has added 451 branches and 4475 ATMs. The ATMs count of the bank stood at 51373 ATMs at end March 2016.

• The core fee income of the bank has increased at healthy pace of 18% to Rs 5794 crore in Q4FY2016, while the bank has recorded healthy 44% growth in recoveries in written off accounts to Rs 1257 crore.

• The non-interest income of the bank included repatriation of profits from foreign offices amounting to Rs 1328 crore in Q4FY2016 in addition Rs 221 crore in Q3FY2016 and Rs 485 crore in Q2FY2016.

• The cost-to-income ratio of the bank was stable at 49.13% in FY2016 compared with 49.04% in FY2016. The employee count of the bank has declined 2.08 lakh at end March 2016, as the retirements at 9373 employee were higher than the new recruitment of 7070 employees in FY2016.

• Bank has improved the Net Interest Margin (NIM) on sequential basis to 2.96% at end March 2016, while the NIM has declined from 3.16% at end March 2015 on account reduction in base rate.

• The interest income reversals on account large fresh slippages stood at Rs 871 crore in Q4FY2016.

• The bank has increased the share of digital channels in overall trasactions to 74% at end March 2016 from 70% at end March 2015.

Capital Raising

• The CRAR ratio of the bank stands comfortable at 13.1% with the Tier I ratio of 9.92% at end March 2016. In FY2016, the bank has conducted overall capital raising of Rs 15893 crore, constituting Rs 5393 crore of preferential issue to the government and Rs 10500 crore of Tier II bonds.

• Bank is expecting the proceeds of Rs 3000 crore from divestment of non-core investments and subsidiaries, adding to the capital position of the bank.

• The bank has real estate assets of over Rs 20000 crore, and expects the reevaluation of real estate assets to add to 10000 crore to the capital position.

Asset Quality

• The fresh slippages of advances stood at Rs 30000 crore in Q4FY2016 up from Rs 21000 crore in Q3FY2016. The fresh slippages of advances was elevated in H2FY2016, mainly on account of the Asset Quality Review (AQR) of the banking system conducted by the Reserve Bank of India and advise to the bank to downgrade certain weak accounts to sub-standard category.

• As per the bank, the fresh slippages from AQR declined to Rs 9000 crore in Q4FY2016 from Rs 14000 crore in Q3FY2016. However, the overall slippages were higher as bank considered downgrading of weaker accounts on the AQR list of other banks too, which amounted to Rs 20000 crore.

• The slippages from personal, agriculture and SME segment were moderate at Rs 1000 crore in Q4FY2016.

• The slippages from restructured advances stood at Rs 7700 crore, while the slippages from 5/25 refinancing scheme were Rs 5926 crore, while the accounts from Strategic Debt Restructuring (SDR) schemes also slipped to the tune of Rs 6350 crore in Q3FY2016.

• The outstanding balance under 5/25 refinancing scheme stood at 19000 crore, of which Rs 6350 crore have slipped to the NPA category.

• The SDR outstanding balance stands at Rs 16000 crore, of which Rs 11000 crore has slipped to the NPA category.

• The bank has identified about Rs 31000 crore of loans as under special watchlist for FY2017, which is just 2.1% of overall loan book. Of these watch list accounts, about 70% of loans have more chances of slipping to NPA category. About Rs 11655 crore of watchlist accounts come from restructured advance book, while the sectors contributing to the watch list accounts are power (Rs 4748 crore), iron & steel (Rs 4299 crore), engineering (Rs 3574 crore), oil & gas (Rs 3396 crore), construction (Rs 2608 crore), chemicals (Rs 2326 crore) etc.

• Bank has unutilized countercyclical provisions of Rs 1100 crore.

Merger of Associate banks

• The bank has asked for the permission from the government for entering into negotiation with the associate banks and Bharatiya Mahila Bank to acquire their business including advances and deposits.

• The bank is eyeing various benefits from merger such as rationalization of branches and employee, along with enormous cost saving.

• As per the bank, the asset quality and capital ratios would remain stable post merger.

• The bank has estimated the benefits of various cost savings at Rs 3500 crore from merger.

• As per the bank, the cost-to-income ratio would decline by 100 bps post merger providing the benefit of cost saving of Rs 1000 crore.

• The cost of deposits net of return on advances is expected to decline by 50 bps on merger, helping the bank to reduce interest cost by Rs 1200 crore.

• Currently, the treasuries of the associate banks handles combined investments of Rs 143000 crore, which if merged with SBI is expected generate additional returns of Rs 1300 crore.

• The merger of Bharatiya Mahila Bank, brings in capital of Rs 1000 crore.

• As per the bank the revaluation of assets, which is pending, would contribute Rs 745 crore to the capital position of three associate banks and Rs 10000 crore for the SBI and help improve CRAR ratio by 85 bps.

Outlook for FY2017

• The bank aims to achieve credit growth of 12-14% in FY2017, to be driven by retail credit and good quality corporate book.

• The bank proposes to contain fresh slippages ratio within 2.7% of advances in FY2016.

• The credit cost stood at 2.02% for FY2016, while bank expects credit cost to be elevated at 1.7-1.8% for FY2017 on account of aging of NPAs.

Medium term outlook (three years)

• On a merged entity basis (SBI + associate banks), the CASA ratio of the bank stood at 41.4% at end March 2016, while the bank proposes to improve the merged entity CASA ratio to 43% in the medium term period of 3 yers.

• The domestic NIM for the merged entity basis stood at 3.17% at end March 2016. The bank intends to maintain the domestic NIM for the merged entity above 3% in the medium term.

• The cost-to-income ratio for the merged entity stood at 49.2% in FY2016, while bank proposes to reduce the cost-to-income below 45% in the medium term.

• The RoE for the merged entity stood 7% in FY2016, while bank proposes to improve RoE for merged entity above 10% in the medium term.

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