Analyst Meet / AGM - Analyst Meet

12-Aug-2017, 01:59
State Bank of India conducted an analyst meet on 11 August 2017 to discuss the financial performance for the quarter ended June 2017 and prospects of the bank. Arundhati Bhattacharya, Chairman of the bank addressed the meet:

Highlights:

• The bank had a historical quarter in Q1FY2018, when it has seamlessly merged 5 associate banks and Bharatiya Mahila Bank with itself. The bank is providing strong focus for rationalization of the structure of the bank. As per the bank, the branch rationalization would be completed by September 2017, while the redeployment of about 8000 employees is expected to be completed by December 2017.
• The bank has witnessed higher amount of fresh slippages of loans at Rs 26294 crore in Q1FY2018. Of these slippages, about Rs 8363 crore of fresh slippage came from the corporate loan book, while more importantly about 95% of the slippages in the corporate loan book came from the watchlist accounts. Also one large group alone contributed slippages of Rs 4883 crore in Q1FY2018.
• The retail loan segment has exhibited significant amount of fresh slippages of Rs 17886 crore in the quarter ended June 2017. Of the retail sector slippages, about 35% were contributed by SME segment, 40% by agriculture, 14% by the home loan segments and 11% by personal loans segment Q1FY2018.
• The various factors have led to the surge in fresh slippages of retail loan book, such as loan waiver promises in certain circles, end of RBI regulatory forbearance for accounts impacted by demonetization, and lack of follow up with the customers due to banks focus on merger.
• As per the bank, the end of RBI regulatory forbearance to the accounts impacted by demonetization has contributed slippages of Rs 2000 crore in Q1FY2018. The technological glitches during the merger process have also contributed higher retail loan slippages in Q1FY2018, so the bank expects large amount of retail slippages to pull back going forward.
• The bank has exposure to 12 accounts identified by the Reserve Bank of India for resolution under IBC amounting to Rs 50247 crore. As per the bank the additional provision required on these accounts stands at Rs 8570 crore for FY2018. However, the actual additional required provision is only Rs 3000 crore, while rest provisions on ageing of these loans is already factored in.
• The size of watchlist accounts of the bank (merged) has declined to Rs 24444 end June 2017 from Rs 32427 crore end March 2017.
• About 89% of the loan book of the bank is on floating rate basis, of which 60% has shifted to MCLR based lending rate system.
• The provision coverage ratio of the bank stands marginally above 60%, while the bank intends to improve its provision coverage ratio to 65%.
• The bank has raised equity capital of Rs 15000 rupee in Q1FY2018. The bank has also raised the Tier I bonds of Rs 2000 crore at the rate of 8.15%. As per the bank, the capital adequacy ratio would be comfortable to meet the regulatory requirements for March 2019.
• The fresh slippage ratio was significantly higher at 5.78% in FY17, which was elevated but eased to 5.38% in Q1FY2018. However, the bank expects slippage ratio to dip to 3.3% for full year FY2018.
• The standard restructured loans of the bank (merged) stood at Rs 39337 crore and June 2017.
• The bank is targeting 6 to 8% loan growth for FY2018. The bank has continued to gain market share in home loans and auto loans. The bank expects retail, SME, agriculture and select corporate sectors to contribute to loan growth in FY2018.
• The bank expects significant reduction in retail sector fresh slippages going forward, while higher recoveries would help to reduce retail sector NPA.
• The credit cost is expected to trend lower from 2.9% in FY2017 to 2.25% for FY2018. The credit cost stood at 2.48% in Q1FY2018.
• The bank has witnessed 3.5% decline in net interest income in Q1FY2018 on account of sharp reduction in lending rates and higher slippages of loans. The bank has reduced MCLR by 110 basis points and base rate by 15 bps during last one year.
• The higher slippages of loans have led to substantially higher level of interest income reversals of Rs 1355 crore in the quarter ended June 2017.
• The bank expect its margins to recover going forward, as it expects fresh slippages of loans to decline and savings bank interest rate reduction to provide upside to the margins. The bank expects its margin to pick up by 10 to 15 Basis points going forward, as improved recoveries and upgraded will help to improve yield on advances. The pickup in loan growth is also expected to support improvement in yields.
• The bank expect decline in cost of deposits driven by download repricing of FD interest rates of associate banks. The average cost of FDs of associate Bank was 58 bps above the parent Bank at 8.17% as on 1 April 2017. As per the bank the downward repricing of fixed deposit and savings bank deposits would also provide upside to the margins.
• The Casa deposits of the bank remains at strong level, while the bank has gained 53 bps increases in deposit market share.
• As per the bank rationalization of branches and administrative officers would reduce cost to the extent of Rs 1160 crore per annum. The retirement and redeployment of staff is expected to improve productivity. As per the bank, about 15460 employees are scheduled for retirement in FY2018.

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