PSU banks continue steady performance

SBI (CMP - ₹810, Mcap - ₹723251 crore, Buy, Target - ₹1000) - Steady quarter across..

• SBI delivered another steady quarter with earnings remaining flat YoY due to higher provision and accounting norms on investment. Growth in advances came at 15.4% YoY to ₹ 38.1 lakh crore, backed by growth across portfolio. Within retail segment, auto (16.6%) and personal loans (20.5%) witnessed healthy traction, while pace in Xpress credit saw marginal moderation.
• Deposit accretion came at 8.2% YoY, with CASA at 40.7%. Asset quality remained steady with 3 bps QoQ improvement in GNPA at 2.21%, while slippages remained a tad higher at 84 bps, led by ageing and temporary slippages from unsecured book.
• Operationally, NII increased 5.7% YoY, amid decline in margins (-6 bps QoQ) at 3.22%, other income was impacted due to accounting norms on treasury. Thus, operating profit increased 4.5% YoY, however, higher provisions kept earnings flat at ₹ 17035 crore.
• SBI has demonstrated its strength in the last few quarters both on core operating performance and asset quality. Management remains confident on growth, maintenance of margins and improvement in RoA. Sustained balance sheet growth (13-15%), strong liabilities franchise and prudent asset quality is expected to aid RoA at ~1% in FY25-26E.

Bank of India (CMP - ₹120, Buy, Target - ₹165) –steady performance with unchanged guidance

• BOI reported steady performance in Q1FY25. Advances growth remained healthy at 15.8% YoY to ~₹ 6 lakh crore, backed by growth across segment. Within segments, retail growth continued to remain robust at 20.5% YoY, backed by home and auto loans while personal loan growth came strong at 47% YoY.
• Deposit accretion remained in-line with peers at 9.74% YoY with CASA ratio at 42.68%. Increase in CD ratio led to 15 bps YoY and 4 bps QoQ improvement in margins at 3.03%.
• NII growth looks optically lower at 6% YoY due to income tax refund of ₹450 crore in Q1FY24. Lower other non-interest income kept operating profit flat, while lower tax led to 10% YoY growth in earnings at ₹ 1703 crore.
• Asset quality continued to remain prudent with 18 bps YoY decline in slippages (non-annualised) and 35 bps QoQ improvement in GNPA at 4.63%.
• Guidance maintained at 13-14% growth in advance and 11-12% growth in deposits for FY25E. Operational performance remained optically muted. Relatively better business growth coupled with improvement in asset quality is seen to aid valuation. Better recovery through continued focus could act as catalyst.