Vaibhav Agrawal of Angel Broking explains to CNBC-TV18 that the SBI results are not good due to high NPA levels and low NII.
Below is an edited transcript of the analysis on CNBC-TV18
Q: What do you make of SBI’s gross NPA being higher at 5.15 percent?
A: On the gross NPA, SBI has delivered a little bit better than Street expectations. This might have been possibly aided by strong recoveries and write-offs. But I think the net NPA is more or less in line or a bit higher. There is a Rs 2,000-crore sequential increase in net NPA and I think the reason for that is that it is not been able to provide that much because their NII itself has come in well below Street expectations. Overall, we would not call this a particularly good set of results.
Q: What was your expectation on slippages? What's your opinion on slippages of Rs 8,500 crore which is less than last quarter?
A: That is true. But last quarter, the slippage was exceptionally high and this quarter we estimated it to be in the range of Rs 8,000 crore. So the slippage is in line with Street expectations. The net NPA-level is a bit higher than estimated and the NII has disappointed.
Q: So you think the NII is the biggest disappointment combined with the asset quality that has caused the stock to dip from current levels? The restructured accounts are way above estimates- at Rs 4,694 crore as compared to around Rs 580 crore in the previous quarter - indicating that the restructured book has increased quite significantly and maybe the recoveries might not have been as high as expected.
A: I think restructured accounts are incrementally about Rs 4,600 crore. It is nothing positive but at par with other PSU banks results. There is nothing positive to read over there as well.
Q: What is your opinion with regards to fears of SBI’s asset-quality going forward? How worried would you be with regards to the gross NPA ratio delivered this time? How worse can it possibly get according to your forecast?
A: We are still building in an increase in their gross NPA ratio even from these levels up to possibly around 6 percent as well over the next 2-3 quarters. Clearly, SBI does not do write-offs to the extent that other PSUs do. So I think it is going to pile up a little bit more, because nothing in the environment and the management's guidance indicates that asset quality in the next two quarters will be anything much better than what it is currently.
Q: What do you make of the dip in the NII and what the bank might report in terms of credit growth? What would your estimates be?
A: The results of all PSU banks reveal a phenomenon of interest reversals due to the large amount of restructuring and chunky NPAs. So that is the main reason why even the interest income is getting reversed. This is again something which could possibly continue as long as even the NPA results remain elevated in the next quarter or two.
Q: Do you think that credibility of the management would be at stake? Time and again the management has emphasised that asset quality would not worsen. How would you react to these results based on what the management had guided?
A: I would not necessarily read too much into that. Somewhere, the Street realises that and the general commentary from the overall PSU space has been that the pressures continue and especially for SBI which is the largest bank. It is really difficult to really factor-in any major improvement. So the Street is continuing to factor-in weak results and beyond a point, I would not really comment too much on that.
Q: What would your estimates be with regards to the net interest margins (NIMs)? How worried would you be about the bank meeting that FY13 guidance of around 3.75 percent?
A: I think going by the fact that the NII is almost 7-8 percent lower than estimates, I think there would have been at least a 25-30 bps compression in the margin, but again like I said it is because of interest reversals.
Q: So you would not expect them to meet that guidance? Would you look out for any sort of revision on that?
A: There could be some revision on that as well, but beyond a point, it could bounce back and will be a little bit volatile. So we will have to wait for the management guidance for the exact number for the whole year.
Q: After looking at the gross NPAs of 5 percent, the performance every quarter has been below the Street’s expectations. How many morel quarters of poor performance do you envisage before we can see some recovery for a big bank like SBI?
A: I think the economic indicators to improve. It is difficult to forecast any material improvement for SBI for the next two quarters. I think the overall economy needs to improve before that happens.
Q: Where will the stock stabilise?
A: Given the valuations, we feel it is somewhere close to fair value. On announcement of results, the stock had about a 7-8 percent upside. I think something similar to that is what we would continue with over a 12-month period.
Q: How worried would you be about the provision coverage ratio (PCR) which has fallen from 64.3 percent to 62.7 percent and has been on a decline?
A: That is actually another point of concern because the slippages are too large for the profitability to absorb. We have seen it across PSU banks and SBI is no different. Because of that there might be further impact on the book value estimates to an extent.
Q: Any key accounts which you think actually resulted in this high slippage of around Rs 8,000 crore?
A: We would not like to venture into that. We prefer to wait for the management for the details.
Q: How do you read this slippage of Rs 8000 crore? Are you happy that it’s lower on a q-o-q basis or is it still pretty much flattish? What is your opinion with regards to that key parameter?
A: Very clearly, slippages at these levels are still very high in absolute terms. If it continues, then the profitability will remain under pressure. So even if it’s lower sequentially, that’s because the last quarter the slippage was extremely high. But even a slippage of this level is not particularly good.