We trim SBI's FY12e and FY13e net profit forecasts on higher NPA provision assumptions. We retain a Sell as SBI's likely high credit costs would keep RoE lower than that of peers. 

NIM expands, though further gains unlikely. NII rose 32.8% yoy, led by a 183bps rise in domestic credit-to-deposit to 76.7%.CASA share improved 38bps yoy to 47.9%, and grew 18.8% yoy. Due to a 44bps yoy rise in NIM to 3.62%, we raise our NII for FY12e and FY13e by 6.5% and 7.7%, respectively. Yet, given SBI's rising liability costs, particularly short-tenure deposits and a stretched credit-to-deposit, NIM has little scope for further gains.

Asset quality suffers, high slippages persist. Fresh slippages of `61.8bn (~3.4% of loans) indicate that asset quality is still suspect; ~20% of restructured loans (`37.3bn) are NPAs. We raise credit cost estimates by 12.2% and 9.9% in FY12e and 13e, respectively, due to likely high defaults. SBI's management estimates net NPAs of 1.5% by end-FY12. We expect this to be attained through higher NPA provisions, rather than lower incremental slippages.

Low capital adequacy necessitates infusion. Tier-1 capital is now a low 7.6%, making capital infusion paramount for business growth. Management expects the government to infuse capital via a rights issue in FY12, but the quantum is still not finalized.