State Bank of India

NSE:SBIN

Earnings Call Analysis

Earnings Call Transcript 2025-Q2

[Pawan Kedia, executive]

Good evening, ladies and gentlemen. I'm Pawan Kumar, General Manager, Performance Planning and Review Department of the bank. On behalf of State Bank of India, I'm delighted to welcome the analysts, investors, colleagues and everyone present here today on the occasion of the declaration of the quarter 2 financial year '25 results of the bank. I also extend a warm welcome to all the people who are accessing the event through our live webcast.

We have with us on the stage our Chairman, Shri C.S. Setty at the center; our Managing Director, Corporate Banking and Subsidiaries, Shri Ashwini Kumar Tewari; our Managing Director, Retail Business and Operations, Shri Vinay M. Tonse; our Managing Director, Risk, Compliance and SARG, Shri Rana Ashutosh Kumar Singh; our Deputy Managing Director, Finance, Smt Saloni Narayan; our Deputy Managing Directors heading various verticals and Managing Directors of the subsidiaries are seated in front rows of this hall. We are also joined by Chief General Managers of different verticals business groups.

To carry forward the proceedings, I request our Chairman, sir, to give a brief summary of the bank's quarter 2 financial year '25 performance and the strategic initiatives undertaken. We shall thereafter straight away go to question-and-answer session. However, before I hand over to the Chairman, sir, I would like to read out the safe harbor statement. Certain statements in today's presentation may be forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual outcomes may differ materially from those included in these statements due to a variety of factors. Thank you.

Now I would request Chairman, sir, to make his opening remarks. Chairman, sir, please.

[Challa Setty, executive]

Good evening, ladies and gentlemen. Thank you for taking the time to join this analyst meet today, post announcement of Q2 FY '25 results of the bank. The results for the second quarter of FY '25 highlight continuity, consistency and SBI's significant long-term strengths. At the outset, I would like to thank all our stakeholders for their support and helping us in creating a sustainable value not only for the bank, but also for the economy as a whole.

Over the years, SBI has remained focused on strengthening the key components that contribute to the sustainable value. We have prioritized our liability franchise, refined our processes, continue to improve our underwriting standards and aim to deliver value to all stakeholders while positioning ourselves as a reliable financial services brand. I will first start with a brief description of the present global and domestic economic scenario and then discuss bank's performance.

Global growth is expected to remain stable, though somewhat underwhelming with cementing of growth in the largest economy of the U.S. being a silver line. The recent U.S. election results could lead to lower taxes, favorable regulations, along with tighter labor markets. They also present an opportunity for the Indian economy to further strengthen the domestic manufacturing base, while closely aligning with strategic allies. Further, any positive development on the geopolitical situation in areas of conflict could lead to easing of commodity prices. On the other hand, the EU block appears still shrouded in uncertainties.

The global growth forecast by IMF for 2025 remains at 3.2%, with India remaining the fastest-growing large economy. In the domestic front, India's GDP registered a growth of 6.7% in Q1, driven by private consumption and investment. Looking ahead, agriculture sector is expected to perform well on the back of above normal rainfall and robust reservoir levels, while manufacturing and services activities remain steady. On the demand side, healthy Kharif sowing, coupled with sustained momentum in consumer spending in the festival season augur well for private consumption.

The average inflation for FY '25 is expected to be 4.5% according to RBI estimates. Latest numbers show that scheduled commercial banks deposit growth has now surpassed credit growth. Deposit credit differential has now turned positive, which was last seen in April 2022. We expect SCB's deposits will grow 11% to 12% and credit by 12% to 13% in FY '25. RBI has ensured that system liquidity remains comfortable by conducting 2-way market operations.

Coming to the bank's performance, we have once again delivered a good set of numbers. At the end of Q2 FY '25, our credit growth was 14.93% year-on-year. Deposit growth was 9.13% year-on-year, while the CD ratio domestic was 67.87% Importantly, our slippage ratio was 0.51% with retail slippage ratio at 0.31%. Credit cost was 0.38% and PCR was 75.66%. The profit for the quarter was INR 18,331 crores, up almost 28% year-on-year. On the business front, deposits at the end of Q2 FY '25, deposits have crossed a milestone of INR 50 trillion with more than 50 crore customers. We are humbled to serve 1 out of every 3 Indians. In some way, SBI touches every Indian family. The total deposits have grown by 9.13% year-on-year to INR 51.17 trillion.

Term deposits have grown by 12.51% year-on-year. Our current account deposits have grown by 10% year-on-year and CASA has grown by 4.24%. We have maintained CASA ratio at more than 40%. As far as credit growth is concerned, I'm pleased to advise that the credit growth continues to be robust across all segments. Our domestic advances have grown by 15.55% year-on-year, driven by 18% growth in corporate, 17% in agri, 17% SME and 12% in retail segments. Our foreign office advances have grown by 11.56% year-on-year. Our market share in savings bank deposit was 26.51% at the end of June 2024. From September 2019 to September 2024, our savings franchise achieved a compounded annual growth rate of 8.34%.

When it comes to advances, our market share was 19% at the end of September 2024 with a 5-year CAGR of 11.76%. Notably, our credit growth in Q2 was 14.93% as compared to 13.03% for the ASCBs. And the credit cost stood at 0.38%. The net NPA ratio improved by 11 basis points year-on-year and stands at 0.53%. We have a well-provided NPA book with PCR at 75.66%. I think the first time we crossed 75% cover. These indicators of asset quality highlight the robust quality of our loan portfolio. Our liquidity position is comfortable with the liquidity coverage ratio being about 129% as on 30th September. And the domestic CD ratio was at 67% -- 67.87% indicating significant potential to grow our credit portfolio.

The bank remains well capitalized, and we have sufficient headroom to take care of business growth requirements. Our capital adequacy ratio is at 13.76% without considering clawback of profits and is well above the regulatory requirement. If we include the profits for H1 FY '25, our CAR would be at 14.79%. I'm happy to share the progress we are making in digital banking. More than 8 crore customers have been registered on YONO, driving digital agenda of the bank. 61% of our regular saving bank accounts are opened through YONO in Q2 FY '25. Our subsidiaries are also consistently performing well and continue to create significant value for all the stakeholders. We will continue to nurture these subsidiaries and maintain leadership position in their respective businesses.

We are glad to report that the bank continues to report ROA and ROE greater than 1% and 20%, respectively, at the end of half year FY '25. Previously, we have highlighted that SBI stands out as one of the few financial institutions with unparalleled long-term advantages capable of delivering more than 1% ROA at this scale. Scale is a crucial aspect to consider. SBI maintains a more than 1% ROA with an advances portfolio of INR 39 lakh crores, an investment portfolio of INR 16.66 lakh crores, a deposit base of INR 51.17 lakh crores and a total balance sheet size of INR 63.41 lakh crores, which is risk weighted at 54%. It is important to highlight the risk weights of SBI's balance sheet.

A more insightful indicator of SBI's profitability is its industry-leading RORWA of 2.07%. This is risk on -- return on the risk-weighted assets. By combining our market shares in both asset and liability products with RORWAs, it is evident that the bank has a dominant presence in all the large risk-adjusted profitable lending and liability markets in India. So while we are glad about the outcomes in Q2 FY '25, we're also mindful of areas for further improvement.

On the liability side, we continue to focus on increasing our share in current account while maintaining our leadership position in savings bank deposits by further strengthening our customer outreach and branch network. Although the bank's cost base is substantial, it highlights our commitment to compliance and establishment expenses. The bank's ROE profile is currently higher than its credit growth, implying CET1 accrual in the future. From this strong position, our goal is to consistently achieve an ROE over 15% throughout business cycles.

To conclude, I want to thank you all once again for your support. The bank, while pursuing its own progress, contributes to the progress and growth of the economy. We remain committed to rewarding our stakeholders' trust in us with superior sustainable returns over the long term.

My team and I are now open to taking your questions. Thank you very much.

[Pawan Kedia, executive]

Thank you, Chairman, sir, for the presentation. We now invite questions from the audience. [Operator Instructions] We now proceed with the questions-and-answer session.

[Mahrukh Adajania, analyst]

Congratulations. Sir, my first question is just on credit and deposit growth. I guess you have quoted in the Business Standard Conclave seeing that the pace of growth of deposit and credit should nearly coincide. So our deposit growth has outpaced credit growth this quarter. But on a year-on-year basis, there's still a gap. So how are we viewing that gap? Can it continue?

[Challa Setty, executive]

Thank you. I think our effort is -- in fact, there was some question why you have a low CD ratio, why are you pursuing the deposits? So I think deposit as a franchise, we continue to ensure that the deposit growth is maintained in terms of 2 aspects: One is our market share of 23% under no circumstances, we are going to allow it to go down. I think we will -- 22% to 23% is something what we want to maintain. Number two, whether -- while we have adequate liquidity and capitalization to support credit growth, we would like to ensure that the incremental credit growth is supported by the incremental deposits. I think that part will continue to be there.

So with a huge deposit base, even if lower double-digit growth of 10% to 11% would give me that heft to meet that credit requirements. This is the idea in terms of saying how we ensure that the incremental credit is supported by the incremental deposit growth.

[Mahrukh Adajania, analyst]

So we can continue to expect 14%, 15% loan growth and maybe 11% or so deposit growth, 10%, 11%?

[Challa Setty, executive]

Yes, definitely, on the credit growth, I think we are sticking to our guidance that 14% to 16% will continue to be there. Deposits, yes, the effort is to cross the hurdle of 10%. Today, we are more than 9%. And a lot of efforts, which we have done in terms of mobilizing the deposits have paid -- I mean, resulted in some significant growth of 9.13%. As I mentioned, the greater milestone of INR 50 lakh crores is a proud moment for us. And we will -- we hope that I think the 10% to 10.5% should be possible. And if you notice, I think, we already are in the double digits, both in the current account and in terms of deposits. The next target would be how do we increase our savings bank growth rate.

[Mahrukh Adajania, analyst]

Got it, sir. Sir. And my next question is on Xpress Credit. So what is the outlook there given that now we've fallen below 10% year-on-year? So just a broad outlook there.

[Challa Setty, executive]

We are seeing the growth coming back into this unsecured product, which we have had, an unsecured personal loan. We felt that I think it was more in terms of the demand than anything else. One thing what we must remember is that this is a high churning product in the sense that while we give for 5 to 6 years term, it gets paid off pretty fast. 14 months is the average life of an Xpress Credit, which means that if there is a slight demand slack, you result in slowing growth. On an average, I think we get INR 16,000 crores to INR 17,000 crores repayment every month.

So we have to keep pace with that. It is not that we have not been growing on that. Because the repayments outpace the disbursements, sometimes the growth rate slows down. But we are seeing a good traction in the month, current month. And hopefully, this busy season will ensure that if not that 30% CAGR, what we have witnessed in the past, I think, we will come back to a reasonable growth rate there. Do you want to add anything, Vinay, on that?

[Vinay Tonse, executive]

Yes. This month of -- I do not want to be very forward-looking, but the month of October has been really good. And the copy book style of the slack season and the busy season is actually playing out for us in all, including the Xpress Credit. We have no concerns coming out of that.

[Ashok Ajmera, analyst]

Sir, I'm Ashok Ajmera, Chairman, Ajcon Global. At the very outset, sir, welcome to you. You are chairing the first meeting in the -- first analyst meet as the Chairman of the bank, the largest bank of the country. And compliments to you for the wonderful numbers, good set of numbers. Operating profit touching almost about INR 30,000 crores. And I think this is one of the highest operating profit of the bank. And all other parameters also, the bank has performed exceedingly well.

I have just a question, which I will just take it forward from Mahrukh has asked about the numbers of the credit growth, which you have given, sir, 14% to 15% target, now I think as per these numbers, what we have achieved is around 4.09% in this first half of FY '25. So we have a long way to go to achieve the remaining 9.5% to 10% growth, which means almost about INR 5 lakh crores of credit growth in the remaining 6 months. So what is the road map there, sir? How do we plan to achieve that kind of credit target in remaining, now you have only 5.5 months.

My first question is on that. Second one, sir, the major part of the other profit has come from the other income this quarter. I mean if you look at it, the sale and the revaluation is INR 4,641 crores as against INR 2,500 crores in last quarter. ForEx income is INR 1,111 crores as against just INR 361 crores in the last quarter, and miscellaneous income, INR 2,685 crores against INR 1,200 crores. So whether this is a regular phenomenon going to be in the remaining 2 quarters of this kind of profitability, I mean, the other income? Or some one-offs are there in these 3 items if you look at the profitability?

And thirdly, on the provisions, we see that some other provisions of INR 600 crores. We were asking madam also some time back, so what is that? Because we have been actually writing back the provisions in the earlier 2 quarters, if you look at it. This time, there is a provision of INR 600 crores on the other -- this thing. And on the SMA front, sir, this SMA-1, of course, that one-off INR 9,000 crore account, which has taken the SMA-1 to almost about INR 12,000 crores, that has been already regularized. Its note has been given. But is it going to do the again slip and come back or it is a permanent kind of a solution?

And there was one another account of the government, which we were discussing whether any provision provided for that. I think you can clarify on that. And Madam also since the government has given some money, so what is the plan in that? Whether it is a temporary arrangement there also or we might have to provide for that? So these are my couple of questions, sir, in this round. If time permits, I'll come back again, sir.

[Challa Setty, executive]

Can go back to the credit growth slide. So if you see here, other than retail personal, it has been a secular growth. And we are seeing that this secular growth, segmental growth is likely to continue. And the corporate side, I will ask Ashwini also to supplement. But we see that there's a good visibility of the pipeline, both in terms of the proposals under sanction, and proposals sanctioned but not disbursed. I think this is the data which we consistently keep giving you. And these numbers are almost INR 6 trillion. INR 6 lakh crores is something what is -- these 2 things constitute. And the growth is also coming from year-on-year, the higher utilization of the working capital limits.

So the combination of this indicates that our corporate credit growth would remain in this higher double digit. Agriculture, this growth in the first half has come despite heavy rains and many things what is happening. And we also have diversified our agricultural portfolio. It is not only coming from the crop loans. I think we have various components of rural finance, which is built into this agricultural book. And the rural finance includes agri infrastructure financing, self-help financing, agri gold loans, crop loans. We have significantly enhanced our ability to assess this agricultural financing. We have set up what is called agri CPCs across the country, and we have brought back our relationship manager for rural and urban, which they are processing the high-value agricultural loans now.

I think the combination of this also shows that agriculture during the second half will continue to do well. On the SME, some of the measures, which we have taken, I think earlier also we have shared the SME financing, we are trying to move heavily into data-based, non-collateralized cash flow-based lending. We have introduced what is called Business Rule Engine up to INR 5 crore limit assessment, and it is doing very well. I think we have done from inception, almost INR 30,000 crores loans under the BRE here. And BRE uses an extensive data sets, both internal as well as external. And one of the major complaints against major public sector banks, including SBI, is that the turnaround time for issuing a sanction for SME loans is longer.

Today, under the BRE, we are able to give in-principle sanction in 15 minutes. And if it is guaranteed by CGTMSE, the disbursement is done in 2 days. So I think this operational efficiency improvements also, I think, would help us to continue to grow this book, SME book. Again, SME also has several components in this dealer financing, vendor financing, balance sheet financing. I think almost all the components we are trying to improve the operations. Then the question of retail personal comes.

Retail personal, as we've been mentioning, we are seeing an uptick. Hopefully, that will be sustained during the second half. So the credit growth is definitely, we are confident that 14% to 16% credit growth rate happen. And as a home loan, one of our leading products, you see that 13.66%, average 13% to 14% CAGR is being ensured on this. And we see historical levels of sourcing of home loan applications in the first half and which resulted in a huge number of sanctions and disbursements in this category. And almost all the other products are also doing well. Coming to your other income, yes, we are definitely aided by the other income in this quarter.

Other income components, as you rightly mentioned, Ajmera saab, is in terms of both trading gains, MTM gains and the recovery in the written-off accounts. So recovery in written off account, our assessment indicates that the current run rate will continue. I mean that is fairly easy to assess that you know what is in store, where that you have taken the measures of recovery, what is the stage in the NCLT or SARFAESI, DRT, you have a fair idea about the recoveries, unless some last-minute things happen. But on the trading front, of course, is a function of yield movement.

We have consciously worked in terms of acquiring some additional -- added some duration to the book, and we played on yield movement and the trading gains were there. Our estimate -- our expectations is that the yield trajectory will be range bound between 6.6% to 6.9%, in which case, I think we still have some scope for trading gains. MTM, again, is a function of yield movement.

The third piece on the ForEx, we definitely got benefited. The volatility always gives us some benefit, and so I think we played on that. And it's mainly the proprietary derivative book, which we have had, which contributed to these treasury gains. It is very difficult to confidently say that there's going to be the same level of profit, but we'll try to maintain that. If not this part, I think there are other sources of other income. We want to escalate our loan processing charges. We want to increase our other income by engaging more on the ecosystem banking. I think our renewed focus on noninterest income will continue, and we are hopeful to get in. You want to say something on the other provisions?

[Saloni Narayan, executive]

Last year, we had a write-back of INR 1,010 crores on account of NPA automation, which was completed by the bank, and we were able to write it back. That is the main reason. So this year, we don't have that write-back. And apart from that, the normal provisions, of course, have gone up from INR 283 crores to INR 876 crores, which is -- I mean, which is okay. I mean there is no particular segment to call out. It is -- the only factor is this NPA automation reversal of INR 1,010 crores.

And to your point of AUCA recovery, last year, same quarter, we had INR 1,566 crores AUCA recovery. This year, we have INR 2,336 crores. And as Chairman sir has said that going forward, we are expecting this kind of recovery in the next 2 quarters.

[Challa Setty, executive]

Ashwini, you want to supplement something on the corporate?

[Ashwini Tewari, executive]

So on the corporate side, you've seen good growth, but this growth has not come on its own. Actually, my team is sitting here, last 1.5 years, they've been planning for this, contacting corporates, understanding their business plans and actually trying to fit in where we can. And therefore, we approach them much before time. And that's how this book has been building up and like Chairman explained, INR 3 lakh crores on pipelines, INR 3 lakh crores to be disbursed and there's some more undisbursed term loans, et cetera. So all of that is a huge number.

Of course, not all of this will fructify, but we keep engaging, keep getting more leads, keep getting more conversation. This is all about conversation and being in the right place. So I think our corporate book continues to be strong. We expect to see a good growth in this. Of course, we are selective. We don't want to compromise on asset quality at all. And hopefully, this will continue.

[Ashok Ajmera, analyst]

Sir, which are the major sectors or areas from where this credit growth is coming, the demand is coming and the book is building?

[Ashwini Tewari, executive]

So infrastructure continues to be strong. So that includes both renewable energy, it includes roads, includes power. And now we are seeing action in the thermal power space also, which for some time, we were not seeing. But apart from renewal, thermal is also seeing traction. And apart from infrastructure, then we are seeing steel, some demand coming up. There is also demand coming from some of the real estate...

[Saloni Narayan, executive]

Petroleum and petrochemicals.

[Ashwini Tewari, executive]

Petrochemicals, real estate.

[Saloni Narayan, executive]

Engineering, aviation.

[Ashwini Tewari, executive]

So a lot of these things. It's a broad-based demand. It's not restricted.

[Saloni Narayan, executive]

Services.

[Ashok Ajmera, analyst]

Just sir, one observation and your feedback, if you allow me. Sir, today, the Jet Airways, yesterday, Supreme Court of India's decision that they allowed -- they ordered the Jet Airways to be liquidated. And we have a good share up there. I think out of almost about INR 3,000 crores, INR 4,000 crores, I think our share is one of the major share in that. And you already got INR 400 crores, INR 250 crores in cash and INR 150 crores in bank guarantee. So on that, any tech, I mean, this quarter, we will have some substantial recovery on that because you have a lot of collaterals also. So some -- can you throw some light on that, sir, that account because it has been published in the newspaper.

[Challa Setty, executive]

No, that's okay. I think, generally, we don't talk about the individual accounts. And of course, it's a popular account to comment on. It's -- Ajmera saab, it's too early to say anything. I think we just received the order yesterday. We are studying. The lenders have to meet and strategize how to go about it. We'll just wait for some time on this.

[Saloni Narayan, executive]

Ajmera saab, let's talk about the results.

[Challa Setty, executive]

No, that's okay. We'll just wait for some time.

[Sushil Choksey, analyst]

Sir, congratulations to team SBI. Sushil Choksey, Indus Equity. Sir, you gave a highlight on credit growth where INR 6 lakh crores is very visible where corporate is concerned. One is, how is the retail engine looking, not from SBI perspective, but where India is concerned? Second is, you've said that volatility in Treasury is between 6.6% to 6.9%, which would be a healthy gain for the bank. And how do you see deposit market with our market share where it is? Whether the rates have peaked, banks would garner more deposit? Or there is something, which is not functional well for the deposit market?

[Challa Setty, executive]

So on the -- Choksey saab, on the retail personal, we always have been saying that our retail personal book is incredibly different from others. I still hold on that view.

[Sushil Choksey, analyst]

My question is on overall retail business. I'm not asking unsecured or secured.

[Challa Setty, executive]

No, even in the retail business. What are the retail components? Just come to that slide, please, and the retail book. So these are the major segments of the retail. Home loans continue to be a robust growth. And we expect that 13% to 14% growth rate on the home loans continue. The auto loans have, I think, first quarter was slower. Second quarter also slower, but we are seeing a good growth coming back on the auto loans. And personal gold loans, we have had recorded historical levels of growth rate there. So the whole segment of retail personal is doing well.

And if you see the asset quality, it continues to be robust. I think from that angle, SBI book, if you want me to talk about it, I have no great concern, both in terms of growth as well as in terms of the asset quality. As far as industry is concerned, I think there have been some concerns in terms of asset quality on the unsecured loan book, mainly in the small ticket loans. If you again see while we -- 95% of our unsecured personal loan or the whole retail segment is salaried class, whether it is home loans or auto loans; predominantly, it is salaried class movement in salary accounts with us. But in case of industry, what we noticed that the small value loans, particularly INR 50,000 to INR 1 lakh are the ones which had some major issues in terms of the asset quality. We are not there in that space, anyway.

And as far as deposits is concerned, yes, it is a concern for everyone because there have been a reallocation of asset portfolio by every individual. A part of their income, they want to -- part of their surplus, they want to put in some other categories of investment instruments. That has resulted in some of the deposits going into other sectors. But what we saw that this deposit growth is also a function of how effectively you are following up with your customers. I'll just give an example. I think we mentioned earlier also, we did an extensive analytical data analytics on our portfolio of 50 crores customers. Even if you take out of this 50 crores, 17 basic savings bank deposit customers aside, Jan Dhan accounts and all, 33 crores account customers, we have intensively analyzed and saw that there are promoters, there are [ stagnators, ] there are [ traitors. ]

And these are the categories of customers. Every one of them requires a different approach to reach out and then continue to have the stronger relationship with them. So these are the strategies, which are helping us to mobilize the deposits. As far as rates are concerned, we believe that the rates have peaked. And if you see, there have not been much rate action in the last 2 to 3 months on the deposit side. While we floated some new schemes like we did one Amrit Vrishti is one of the most popular deposit product, which had mobilized a huge amount of fixed deposits for us. We adequately compensated the customers. I'm not saying that we have compromised on that. But broadly speaking, the interest rate on deposits has peaked.

[Saloni Narayan, executive]

[ INR 1,40,000 ] on Amrit Vrishti, sir.

[Ashwini Tewari, executive]

Q3 and Q4 would be much better, particularly, Choksey saab, on the deposit front, I would say. And we must also keep in mind that this also answers Mahrukh's question. We have a base of INR 50 lakh crores now. So even a 10% would mean INR 5 lakh crores, but our franchise is definitely up to this challenge. We will cross easily into double figures.

[Sushil Choksey, analyst]

Sir, looking at your performance and guidance on credit, deposit market, what's new which is going to come out from SBI for 2025 within the business at the bank and the subsidiaries, which we should look forward to? I'm not asking a number.

[Challa Setty, executive]

No, no. I think all of us have to look forward to consistency of the profit. We don't want to surprise either on negative side or on the positive side. So we just want to maintain the consistency. We'll be happy to give the same rate of growth and same performance what we are doing both on the deposit side and advances side. I don't think there would be any big bang announcements or something like that. We don't want to do that. So we want to stick to...

[Sushil Choksey, analyst]

Credit market is indicating that you can underwrite much more bigger and larger loans than where you are writing today and you can downsell, too.

[Challa Setty, executive]

No, this originate to distribute is something, which we have been following up. I think we'll continue to do that. Our ability, it is not only in terms of writing a big check, it is ability to assess the large projects, complex projects. That is the ability which we built over years. And we would like to capitalize on that. And if there is a good market where we can distribute the loan, which we have underwritten, we will definitely do that.

[Sushil Choksey, analyst]

What I mean is if business and underwriting process, both permits you to write higher credit, seeing the current deposit market because you said you would like to maintain a deposit market, too, at a certain share. Will we accelerate on the advances? Because the sense is that infrastructure led by hydrogen, maybe semiconductor, various opportunities, which may be emerging, retail markets or whatever, will we accelerate or we'll try to maintain at 40? I know that needle moving by 10 bps is also a bigger number compared to other banks, but can we accelerate by 1%, 2% or we won't?

[Challa Setty, executive]

For the record, we would like to stick to our 14% to 16% guidance.

[Jai Prakash Mundhra, analyst]

This is Jai Mundhra from ICICI Securities. Sir, first question, sir, is on margins, right? So if you look at from a broader cycle perspective, FY '22, we had a domestic margin of around 3.3%, and then rate hikes again started. As of H1, we are again at 3.3% domestic margins, whereas at least the later part of the cycle is yet to play out in terms of repo rate cut, right? So in this period, so far, we have, let's say, point-to-point, we are similar at margins. But the rate -- and the cost of deposit, it looks like it has peaked and it will stabilize. But from going forward, when policy rates are -- when they turn, it would look like that we will possibly dip below where we started from.

So in process, of course, as you mentioned in your opening remarks also that you may have focused more on risk-adjusted return, RORWA. So how should one look at it, a, in the sense that why would margins -- why at this point of time, we do not seem to have much tailwinds even at this point of cycle when the other banks have actually kept some of the margins when they started from, whereas we are almost similar to where we've started from. And as you mentioned on RORWA, what is -- I mean, if you can elaborate there in conjunction to margins?

[Challa Setty, executive]

So I think broadly, we believe -- I think most of the points you yourself answered, Mundhra. I mean, nothing much for me to add. There would be impact of rate cuts on everybody's book for 2 reasons. One is the composition of the books have changed. We used to have predominantly MCLR books a couple of years ago or maybe 4, 5 years ago. And with the regulatory nudge, some of the loan book has moved to repo-linked loans or external benchmark-linked loans. Obviously, there will be some impact on that book. But in our case, what we believe is that more than 40% of our book is MCLR linked. And even that other benchmark T-bill linked loans are very short-term loans, which we have the capability to readjust the pricing there.

The only thing what probably would be a little more sticky in terms of adjusting is the repo-linked loans, which are essentially the MSME loans and your home loans [Foreign Language]. So -- but 42% MCLR book with 2 to 3 rate hikes, which we have had in the last 2 months would give us some protection in terms of the contraction of margin. That is what we are expecting. And also on the rate cut front, if you are assuming that the first rate cut is likely to happen in February and not going to be a bulk rate cut, maybe a moderate rate cut of 25 basis points. So overall impact on margins and -- are not going to be significant. This is our assessment.

[Saloni Narayan, executive]

Can I add one point, sir? This MCLR increase that we have done that chairman sir was speaking about, that will play out after December. So even if there's a rate cut, we already have that 20 bps cushion there. So I think net-net, we should be stable in the year-end.

[Challa Setty, executive]

So in terms of -- of course, the ROA and RORWA comparison, what I have given is just to drive home the point that the historical play out -- playbook, what we followed is that how do you contain your risk and continue to have operating profit to net profit conversion as much robust as possible. And this is the point, which we are trying to bring down -- bring out when we talked about return on risk-weighted assets. Otherwise, we can accumulate more risk and give you a good ROA.

But we are trying to calibrate, especially when you run a large bank, I think this calibration is required. It may sound a little playing safe, but I think wherever the risk has to be taken, we have taken the risk, but very calibrated risk. We have invested heavily into underwriting standards, no compromise on the quality. And that has put us in good state. That is what we believe. And that is the reason I said I kept on talking about the consistency. Even -- no surprises even if pleasant surprises are required.

[Jai Prakash Mundhra, analyst]

And lastly, sir, if you can talk about the Xpress Credit, right? So while I hear you that you mentioned that there is some demand softness that you saw and the repayment continues to remain high and, hence, there is a slower growth. So on that, have you also changed any of your underwriting criteria, which would have led to slightly slower disbursement? Or there is not too much change there? And how -- when do you see this 7% Y-o-Y growth in Xpress Credit going back to maybe overall bank level growth? And if there is any noticeable change in the 30 DPD or SMA-1, -2 behavior of that book?

[Challa Setty, executive]

So in terms of the process improvement, definitely, we have undertaken in the last 12 months. What we have done is that the whole gamut of Xpress Credit assessment, disbursement, documentation, we wanted to automate as much as possible. In the process, what happened, the adoption of that automation has taken some time. We also have reengineered our process. We wanted to bring the similar centralized processing cell efficiency, what we have achieved in home loans in the Xpress Credit also. So that took some time. I'm not saying that the slowdown is mainly attributable to that, but it has also contributed to a certain amount of lower offtake because these kind of products are instant delivery product.

Any delay in delivering will definitely impact the offtake. But that part is addressed now. I don't think that has been a major issue, but we still whatever little irritants were there, we have addressed them. I'm sure I think we'll have to see in the current half year, how the demand is likely to come back? While we are hopeful double-digit Xpress Credit is definitely possible. Whether it happens in the current quarter or next quarter, we'll have to see.

[Jai Prakash Mundhra, analyst]

Lastly, sir, if you can talk about the 30 DPD or SMA-2 trends, if there is any change in the Xpress Credit?

[Challa Setty, executive]

No, there's not much SMA-2 change. There is -- SMA-0, it happens in most of these loans where salaried linkage is there. Because if even 2, 3 days salary delay is there, they move to SMA-0. So that kind of things happen, but they don't move into the NPA category.

[Ramesh Bhojwani, analyst]

Sir, Ramesh Bhojwani from Mehta & Vakil. Sir, Q2 numbers have been delightful to say the least. You have performed or you have outperformed on all the parameters. Just one thought came to my mind. I was seeing in the provisions slide, you have made a PCR of 75.66%. But adjoining to that there is a non-NPA provision of INR 31,054 crores (sic) [ INR 31,084 crores. ] I would like to know this aspect.

[Challa Setty, executive]

Go back to the provision slide, movement of provisions. This is the one, which you are talking about, right?

[Ramesh Bhojwani, analyst]

Yes, slide 21.

[Challa Setty, executive]

Slide 21.

[Saloni Narayan, executive]

So you want to know the breakup of what, sir?

[Challa Setty, executive]

No. So this non-NPA provisions, breakup is given below. This slide, you have the booklet, right?

[Ramesh Bhojwani, analyst]

Yes, yes.

[Challa Setty, executive]

In the booklet, it is given. Provision on the standard assets is INR 24,000 crores. Additional provision on the restructured standard account is INR 4,831 crores. If you remember, we used to call it this COVID provision. That still continues to be there. We have not reversed it. And other loan-related provisions are generally where...

[Ramesh Bhojwani, analyst]

So essentially, it is not worrisome.

[Saloni Narayan, executive]

No, no. Actually, that's a buffer.

[Challa Setty, executive]

It is actually the buffer, which we have built.

[Saloni Narayan, executive]

And this also includes the general provision on standard asset, so INR 13,802 crores is on account of that only.

[Unknown Analyst]

This is Himanshu here. Just one question at my end. Since you have increased focus on the garnering deposits and we have seen that, is there any change the way -- some of the cross-sell of your subsidiary product, particularly the life insurance product because in SBI Life, particularly at the Banca channel level, we have seen a material slowdown. What are your thoughts around it?

[Challa Setty, executive]

Do you want to take it?

[Ashwini Tewari, executive]

So you are right that the Banca has shown a markedly reduced growth this time and last couple of quarters, but it's a kind of a transition, which is happening. So the company is focusing because Banca used to be the predominant contributor. The company has been focusing on agency for some time now because that's something, which is more sustainable, the retention and the rates are higher. So that's one part.

Second is the company is also focusing on -- a lot on digital, not only directly, but also through the bank's YONO channel because there were always some complaints about misselling, et cetera. This is something which is talked about, even though our numbers are the lowest in the industry. So we feel that in case this is sold digitally with the customer's own initiation, then nobody can say anything. It's a customer's choice. So that's the other thing which is being focused.

And a couple of products, which have been recently launched just about a month old, have seen very good traction. So our sense is that Banca is going to come back on the same lines it was. The percentage-wise, maybe agency is going to pick up more and more as we go forward, but the numbers will start to look up in the couple of -- next couple of quarters. So that's -- it's a kind of a transition happening at this point of time.

[Saloni Narayan, executive]

Just to give a number, sir, in cross-selling as against Q2 FY '24, where we earned INR 969 crores. This quarter, it is INR 1,109 crores, which is a growth of 14.40%. And third quarter normally is the best quarter for SBI Life and all. So going forward, the 2 quarters will more than make up, so we are on track to achieve the...

[Unknown Analyst]

Sir, is that transition period over now?

[Ashwini Tewari, executive]

No, no, it's still on because, as I said, the YONO products are -- a couple of them have been launched just this 1 month back. So we are seeing good traction. So maybe it will take a couple of quarters by which time it will get back towards -- I mean, we are still the #1 private life insurer and there's a lot of other initiatives, which are in the works.

[Unknown Analyst]

And secondly, sir, is there any change with respect to the commissioning of the life insurance at the parent level?

[Challa Setty, executive]

No.

[Ashwini Tewari, executive]

No. No, no. It's -- parent has not changed anything. What is changing is the regulatory way in which it has to be reckoned, in which it will be distributed across -- I mean, it will be amortized rather than being booked immediately. So parent has not changed any rates or anything. We are not charging more or less, the same continues.

[Saurabh Kumar, analyst]

This is Saurabh from JPMorgan. Sir, 2 questions. One is on current account. Could you highlight what's your average current account growth would have been? And what will explain this 10% growth that you see in your current accounts? The second is, what is the magnitude of the unrecognized or the AFS reserve, if you can quantify that as of September quarter? And lastly, on your risk-weighted assets, historically, SBI has gone to above 60%. You are in the low 50s right now. Would you be okay if the market permits to go to those levels? These are the ones.

[Challa Setty, executive]

So your first question on the current account, I think we have tried everything what is possible in the current account, let me tell you. Quite a lot of initiatives, which we have done. First thing what we have done is that we wanted to reduce the dependence on the current accounts of the government. While the government contribution is still significant for us, and it has contributed this quarter also, we wanted to get back to the businesses. And we have opened what is called transaction banking hubs across the country. And that had helped us to garner more number of current accounts, number one.

Number two, that we have set up what is called relationship management teams for the current account who do not have any borrowing relationship with us, stand-alone current accounts. I think that has also helped us in a great amount of traction. We pursued current account not as an individual deposit account, but as a multiservice-oriented product. For example, the cash management is required, POS machines are required, QR code is required. So the kind of package, which we designed, it was there earlier also, but I think the renewed focus to the transaction banking hubs also had definitely helped us. The idea of current account balances going up and gaining back the market share has been very seriously pursued. I hope that this will continue because current account is a very fickle kind of portfolio.

So how it moves is very difficult to believe -- I mean, predict. But I think we are hopeful that this level of growth will continue there. And as far as your AFS reserve, anybody from AFS reserve can give that information. Otherwise, we can give you later. RWA, yes. There is some movement on the RWA. Can you just go to the RWA slide, please? Yes, AFS reserves, I think movement to AFS reserve is about INR 15,000 crores. RWA to total assets, I think, broadly, we would like to maintain this. I think that is the reason why in my opening remarks also, I focused more on RORWA. So we want to stick to this level of risk-weighted assets. Even this increase in risk-weighted assets this quarter has mainly come from the market RWAs because we have acquired some CP/CDs and equity portfolio has gone up, which has resulted in the higher RWAs there.

[Saurabh Kumar, analyst]

Sir, just one more question, with you permission. Sir, on your cards business, this card subsidiary, you've seen elevated loss rates. Have you done any analysis of on the personal Xpress Credit, whether there is a cross-sell to some of the customers, which could have turned delinquent in the card subsidiary? Is there an exposure that SBI today has on some of the standard accounts there?

[Challa Setty, executive]

No, this is an independent business model. I don't think our Xpress Credit model can be replicated on the card company. And...

[Saurabh Kumar, analyst]

No, no. My question was, sir, basically, the account is delinquent in the cards business, but the Xpress is still standard. Have you done any analysis? Do you foresee any risk there?

[Challa Setty, executive]

I don't think we have anything. You want to add there? I don't think -- I don't see any such there.

[Ashwini Tewari, executive]

So it's the -- generally, when we source a card from the bank for the card company, it's generally on the strength of the liability account and its behavior. And sometimes with housing loans, high-value housing loans, et cetera, we give cards to those people. So we don't see that there's a personal loan here, which might be impacted because the card is delinquent. We haven't seen any relationship like this. And the threshold is generally kept higher, so it's anyway not likely.

[M. B. Mahesh, analyst]

This is Mahesh from Kotak. Just a couple of questions. First is on asset quality. This question was asked earlier on that SMA account. I don't think, sir, you clarified that. The status as to how this will progress from here onwards.

[Challa Setty, executive]

So as you know, we don't talk about the individual accounts, but let me tell you that there's a serious engagement, both with the company and the government to have a sustainable solution for this.

[M. B. Mahesh, analyst]

Okay. Sir, this question on Xpress Credit again. You've seen this stabilizing at about 1% in terms of delinquency rate or the NPL rate. Should we see this as a number from here onwards given that the portfolio has seen some level of maturity? Or you see further increase possible in this?

[Challa Setty, executive]

In the Xpress Credit?

[M. B. Mahesh, analyst]

Yes.

[Challa Setty, executive]

We hope to bring it down.

[M. B. Mahesh, analyst]

So the third question is on the cost side. If you look at last year, the expectation was that the staff cost will be somewhere around INR 75,000-odd crores to INR 80,000 crores. Current run rate seems to be on the lower side today for the last couple of quarters. The rates declined, but yet we don't seem to be seeing retirement-related expenses being higher. So if you just kind of just reconcile some of these numbers.

[Challa Setty, executive]

You want to take it, Saloni, the staff expenses.

[Saloni Narayan, executive]

So staff expenses, I...

[Challa Setty, executive]

No, staff expenses, as we mentioned earlier also that the wage revision related evening out has happened, right? That means that the run rate will continue at this level till the next wage revision is on the horizon. What is exactly Mahesh your...

[M. B. Mahesh, analyst]

See when interest rate declines, you get treasury gains...

[Challa Setty, executive]

Oh, on the provision for the pension...

[M. B. Mahesh, analyst]

You get treasury gains and you get provisions on this side as well, but...

[Challa Setty, executive]

So I think one is from an actuarial assessment point of view, our pension liability is well provided for. What is actually -- we have a regular run rate of making the provision for pension. Sometimes the uptick will happen when the yield movement happens because the underlying plan book, what you call, plan portfolio, plan securities, if any movement is there, that happens. In this quarter, we actually had a gain there, and we have written back some of the provision. So that is the reason you see the provision for employees coming down. I hope I answered your question. But the run rate continues to be that INR 3,400 crores per quarter.

[M. B. Mahesh, analyst]

Ideally, in a declining interest rate, this provision should have been higher, not lower.

[Challa Setty, executive]

No, that is what I'm saying that when the rate has come down, we should have made provision -- higher provision, but we had a positive MTM on the securities, which got nullified. Gain on the fair value of the securities.

[Parameswaran Subramanian, analyst]

Sir, Param Subramanian from Nomura.

[Challa Setty, executive]

Okay. Please go ahead.

[Parameswaran Subramanian, analyst]

Sir, first question is on the MCLR. So you've seen a -- in the first half, you've seen an increase, which is higher than what the other banks, large banks have seen about 30 basis points. So is there any revisit in the formula there that's driving that on the MCLR?

[Challa Setty, executive]

So the MCLR is a function of cost of resources basically. As the cost of deposits is going up, it will get reflected in the ability to pass on the MCLR. Sometimes we take a call to pass it on, sometimes we don't do that. But technically, this is a function of cost of resources.

[Saloni Narayan, executive]

We still have a cushion of 35 bps.

[Challa Setty, executive]

We still have 35 basis points to pass around. We will have to see when we can do that.

[Parameswaran Subramanian, analyst]

Okay. There's no change in the formula or anything?

[Challa Setty, executive]

No, no. There's no change in the formula.

[Parameswaran Subramanian, analyst]

Okay. Secondly, sir, is there any impact of penal interest reclassification in the margin as well?

[Challa Setty, executive]

None.

[Parameswaran Subramanian, analyst]

Nothing. Okay. And the other one, sir, on the pipeline, you mentioned INR 6 trillion of pipeline in the corporate loans. I just wanted to clarify that because the number you used to say in the previous quarters, what I recollect, is about INR 4.5 trillion, INR 4 trillion to INR 4.5 trillion. So that number is like-for-like comparable with INR 6 trillion. So it's gone up very sharply.

[Challa Setty, executive]

It's gone up.

[Saloni Narayan, executive]

Yes, of course.

[Parameswaran Subramanian, analyst]

That is another. And one last question, if I may. So the presentation mentions -- still mentions open to raise growth capital if needed. So I just wanted your stance on that.

[Challa Setty, executive]

Next slide -- next presentation also, we may have that. Still we raise the capital.

[Pawan Kedia, executive]

So we have a few questions coming in through online webcast. These will now be addressed by the Chairman, sir.

[Challa Setty, executive]

Yes. This is a question from Mayur Parkeria, Wealth Managers. Is the cost-to-income ratio sustainable at current levels?

I think I mentioned in my opening remarks also, the effort is to contain the cost-to-income ratio below 50%. And that, of course, cost-to-income ratio, we believe sustainable because no more provisioning on the wage revision, more focus on digitalization leading reduced expenses. I think operational efficiencies combined with focus on increasing the operating income. I think that is going to be our focus, and we are also working on how do we reduce the overheads as much as possible.

Of course, our overheads growth is not very significant. It's just taking care of the inflation and 2%, 3% more. More focus on improving income, particularly on the other income side. We are working very seriously on the ecosystem banking on the corporate relationship in terms of cash management. We're completely revamping our cash management product, and we are rejuvenating our YONO business where the one-stop solution will be provided to the corporates. I think that is all going to help us in terms of maintaining the cost-to-income ratio.

The next question is from Sanjay Jain. Can SBI maintain the current level of profitability, ROA of 1.17%?

I think, again, I said that the guidance, which we are giving is the ROA of 1%. Anything extra is the bonus. We hope to maintain at least 1% ROA.

Next question is Mona Khetan, Dolat Capital. What is the recovery from written-off account this quarter?

You have the number, Ashutosh? Yes, the recovery from written-off accounts during the quarter is INR 2,336 crores.

Question is from Manoj Alimchandani. Please give impact of rate cuts globally on our domestic and overseas business and growth. Please share how deep the problems in unsecured loans, MFI business and credit card business? Any data points on solutions according to bank management and time for recovery stress, if any?

[Foreign Language] But anyway, I'll try to answer. One is, bank is absolutely well insulated in both assets and liabilities side. As such, there will be a marginal impact on the business and growth. But our overseas business model is that we rely heavily on the market borrowings. Obviously, any movement on the rates will increase our borrowing cost. But our overseas book also have a flexibility of ramping up and ramping down. So we will just take a call on the basis of the rate movement there.

And as far as unsecured loan, more than 95% of total personal loan portfolio has been extended to salary package customers. The credit card industry has continued to witness some stress as evidenced by elevated delinquency level. This trend is mirrored in the portfolio of SBI cards as well. So SBI Card source about 50% of its customer from open market and the rest from SBI.

And as far as MFI business, I think we also mentioned in the press meet that our MFI portfolio is just about INR 10,000 crores to INR 11,000 crores. In the overall picture, it does not really add up to anything. And also, the book is behaving well. We don't see any untoward incidents happening in the MFI book.

This question is from Dhimant Shah. Plans for monetizing your stake in Yes Bank. As of now, there is no such plan. We will deliberate as an opportune time.

Aditya Kumar. What bank's initiative and efforts to increase market share?

I said, I think, I mentioned market share initiatives, both on the deposits and the credit, focus on adopting the region-specific strategies. I mentioned the current account, we have identified 100 potential growth centers for current account and savings accounts and focusing on them to -- and also, we have identified the branches, which have shown negative growth trends and focus on them. The granular manner of focusing on the branch as well as even up to the individual officer level is helping us to mobilize the deposits. So targeting negative growth branches specifically by mentioning through the senior officials and mentoring them.

Siji Philip, Renaissance. Reason for jump in SMA-1 book sequentially? That I have explained. We are seeing good traction in deposit. We expect this to continue. Hopefully, I think we'll continue. I think a lot of effort is going into deposit mobilization. We have galvanized our branch network and also some of these initiatives in premier banking, I think, are likely to help us to continue the momentum.

Kaitav Shah, Anand Rathi. Three questions, loan growth outlook in context of slower economic growth? I think we already have discussed enough on the loan growth.

What is exposure to MFI and do we have hit from the same? I explained, again, earlier.

Any guidance on slippages and credit costs? I think broad guidance on the credit cost, we have given that I think, 50 basis points and that. Slippages, hopefully, will be contained. For Q2 FY '25, the slippage ratio stands at 0.51% and credit cost at 0.38%. We believe that slippage ratio and credit cost maintained below 60 basis points and 40 basis points, respectively.

This is Ranjit RP. Industry figures are now reporting deposit growth rate outpacing advances growth rate. I think Mahrukh has already asked this question. SBI, the trend is reversed. What measures are being taken for the convergence of deposit growth?

As I said, our effort is to cover the incremental credit growth with the incremental deposits. I think that is what we will be focusing on.

This is Akshit Agarwal, SMIFS Limited. Good evening, this is Akshit Agarwal from SMIFS. I wanted to check what is driving higher yield on domestic advance this quarter, as in Page 16 of presentation, with cumulative domestic yield inching up 4 basis points per quarter. Is it movement in higher-yielding business mix or MCLR increase or some other repricing or mix of...

I think it's a combination. I think on the corporate book, we are trying to negotiate harder on the pricing. In case of some of the MCLR increase also has aided us in terms of gaining the yield. SME advances have grown by 17.36% as against domestic advances, which is also resulting in the yield pickup.

[Pawan Kedia, executive]

I trust all the questions have been addressed. We'll be happy to respond to other questions in offline mode. Let me end the evening with thanking the Chairman, sir, the top management team, the analysts.

Ladies and gentlemen, we thank you all for taking time out of your schedule and joining us for this event. To round off this evening, we request you all present here to join us for high-tea, which is arranged just outside this hall. Thank you. Thank you so much.

[Challa Setty, executive]

Thank you, everyone.

[Saloni Narayan, executive]

Thank you, everyone.

[Ashwini Tewari, executive]

Thank you.