>STATE BANK OF INDIA

 Met SBI: asset quality comfort high; limited risks to margins

We recently met with SBI. According to SBI, asset quality should improve and will see higher recoveries going ahead. We are still estimating for ~Rs150bn of fresh slippages (gross) in FY12 vs. estimated +Rs165bn in FY11. Moreover, SBI indicated that it will likely maintain its +3.4% margins (as on 9MFY11) for FY11, although could see qoq decline by +10-12bps from +3.6% in 3QFY11. SBI also believes that upside to rate is limited to +50-75bps from hereon. Further, SBI is

guiding for +19-20% loan growth in FY12 driven by infra. SME and mortgage.

 Pension hit: ~Rs90bn, but earnings can still grow at +32%

SBI’s additional pension liability could rise to Rs90bn (vs. Rs65bn factored-in our est.), but SBI may likely amortize over 5 years. This implies an additional hit of ~Rs5bn/year. However, earnings even after factoring in the additional pension hit could still grow +32-33% earnings growth in FY12E-13E.

To read the full report: SBI