SBI has set new standard in banking excellence. Buy for Target Price of Rs. 673 (45% Upside)

From ‘Enterprising bank, enduring enterprise’ in FY20 to ‘Resilience, People, Technology’ (as pillars of future growth) in FY21, State Bank of India’s (SBI) FY22 annual report is themed ‘Setting new standard in banking excellence’ focusing on productivity, adaptability, sustainability and inclusivity.

Numbers tell the story of adaptability and inclusivity: ~468mn depositors, 142mn financial inclusion accounts (BC channel), 14.2mn farmers served, 4.5mn home loan customers, 35%-plus market share (amongst banks) in home loans, 27.6% share in debit card spends, 15.2% market share in POS, 95.5% share of transactions in alternate channels, >48mn YONO registered users, Rs55trn government business turnover, 17.9mn salary savings accounts, 9.8mn new regular savings account rolled out in FY22, etc.

Even on this scale, the bank has set new standard in banking excellence: SBI exited FY22 with 13.9% RoE and 0.67% RoA aided by growth build-up, GNPAs at a decadal low, slippages at <1%, credit cost at 55bps and steady margin profile. Improved visibility on asset quality with ‘new normal’ credit cost of 1%, credit growth of 13%/15% for FY23E/FY24E, asset resolution and stable NIMs will drive RoE to >16% by FY23E/FY24E and valuations to 1.5x Sep’23E book. Maintain BUY with an unchanged target price of Rs673.

Notable and relevant data points from annual report:

► Disbursed Rs1.46trn of home (and related) loans in FY22 commanding 35.3% market share amongst banks. New car loan journey on YONO was started for NTB customers and 13% of vehicle disbursements were from a pre-approved suite.

► Bank has sanctioned 1.14mn digital personal loans amounting to Rs211bn during FY22.

► Consumer durable loans – 11.1mn pre-approved customers for POS EMI and online EMI loans.

► Slippages were curtailed at <1%; GNPAs settled at a decadal low of 3.97%; around 22 accounts with aggregate exposure of approximately Rs170bn (0.6% of advances) are proposed to be transferred to NARCL in phases. ► With provision on security receipts (SR) of Rs78.6bn as of FY22, SRs are fully provided for. Of the gross restructuring of Rs329bn, 5.5% has slipped into NPA during FY22. ► ~40% of investment portfolio is in AFS category. Bank appropriated Rs46.5bn in FY21 towards investment fluctuation reserves, thereby building reserves to 1.28% (vs 0.56% in FY21) of investments in AFS/HFT category. ► No pending family pension liability; discount rate assumption for retirement benefits increased by 45bps in FY22. ► As of FY22, YONO has set a record with 111.74mn downloads, 16.62mn logins in a day, 26k new digital savings bank accounts per day, and 48.35mn registered users. YONO-B platform is used by 1.75mn corporate users with a registered user base of 619k as of FY22. 139.4k ‘new to digital’ customers were onboarded till FY22 through the YONO business portal.