State Bank of India (SBIN) reported a decent quarter, with healthy NII growth, led by margin expansion, and retail credit growth recovering to pre-COVID levels. On the asset quality front, potential slippages (without the SC order) increased to INR171b, led by the Agri and SME segments. Management indicated total restructuring of INR200b (~0.9% of loans) and a total asset quality impact of INR600b (including restructuring) in FY21E, corresponding to 2.6% of loans. Collection efficiency (CE) recovered sharply to 97%, in line with other large private lenders. We believe the earnings normalization cycle for SBIN has begun as the uncertainty brought about by the pandemic is receding significantly.
OutlookWe sharply raise our FY21/FY22 estimates by 45%/24%, led by healthy NII and moderation in credit cost. The core bank is trading at a cheap valuation of 1x FY22E core PPoP and 2.3x FY22E P/E; we thus reiterate Buy, with TP of INR300.
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