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Higher slippages should be looked at in the context of no moratorium, negligible use of restructuring, already improving recoveries.
Shares of India’s largest lender SBI (State Bank of India) were trading lower by 2.79% at Rs 444 despite the bank reported its highest quarterly net profit of Rs 6,504 crore on August 04.
NII (net interest income) the difference between the interest income from lending activities and the interest paid to depositors increased by 3.74% YoY (Year-on-Year) to Rs 27,638 crore. While its NIM (net interest margin) stood at 3.15%.
On the other hand, the operating profit of the lender increased by 5.06% YoY to Rs 18,975 crore.
Provisions and contingencies declined 19.6% YoY to Rs 10,051.96 crore in the reported quarter, while other income soared 48.5% to Rs 11,802.7 crore.
Asset quality of the lender deteriorated marginally on a quarter-on-quarter basis due to the onset of the second wave of the Covid-19 pandemic. The gross non-performing assets ratio stood at 5.32% as against 4.98% in the preceding quarter ended March 31. Likewise, the bank’s net NPA came at 1.77% against 1.50% in the previous quarter.
While some stress was visible on the asset quality front, the bank delivered a decent performance in a tough quarter making analysts upbeat on the stock. Here is what they have to say
Goldman Sachs | Rating: Buy | Target price: Rs 728
Goldman Sachs has maintained buy amid a strong Q1 with core operating performance ahead of its estimates. The lower-than-expected provisions lead to a beat on profit, while asset quality stood out in quarter where slippages were higher.
The recovery momentum has picked up & underlying book health seems intact. The broking firm increase earnings estimates by 2% on average over FY22-24.
CLSA | Rating: Buy | Target price: Rs 650
Higher slippages should be looked at in the context of no moratorium, negligible use of restructuring, already improving recoveries and it was relatively the best asset quality performance among the large banks.
The NIIs saw muted growth driven by yield pressure and a lack of growth citing which CLSA has cut its PPOP (pre-provision operating profit) estimate by 1% and PAT (profit after tax) estimate by 3%. Yet the global brokerage firm expects SBI to deliver a 14% RoE (return on equity) from FY23.
Motilal Oswal | Rating: Buy | Target price: Rs 600
State Bank of India (SBI) reported a steady quarter, aided by controlled provisions despite a challenging environment. Core operating performance was in-line. Asset quality ratios deteriorated marginally on elevated slippage in Retail/SME. However, the management clarified that slippage worth Rs 4,800 crore has already been recovered/upgraded in July’21. Furthermore, the total restructured book remained in check.
The bank is gaining momentum in earnings every quarter. Thus, Motilal Oswal is of the opinion that SBI will deliver FY22/FY23 RoE (return on equity) of 13.1%/14.6%, with a credit cost of 1.6%/1.3% for FY22E/FY23E.
Prabhudas Lilladher | Rating: Buy | Target price: Rs 540
SBI reported marginally better earnings of on combination of better other income, relatively lower opex & decreased provisions.
According to management the bank has been already has been pull back as collection efficiency & customer outreach improved. Bank despite slightly slower operating performance is currently clocking 10% ROEs/0.7% ROAs and with improvement in credit cost ahead, ROEs/ROAs remains on track for 13%/0.85%.
Sector performance
Most large banks that have reported Q1 numbers so far have seen a deterioration on the asset quality front. ICICI Bank’s net non-performing assets increased to Rs 9,306 crore as on June 30 compared with Rs 9,180 crore in the March quarter. The net NPA ratio was 1.16%, compared with 1.14% as on March 31, 2021.
Similarly, weakness in asset quality for HDFC Bank was visible as gross non-performing asset (NPA) as a percentage of gross advances came in at 1.47% from 1.32% in the March quarter, and 1.36%.
While the gross non-performing assets ratio for SBI stood at 5.32% against 4.98% in the preceding quarter ended March 31. Likewise, the bank’s net NPA came at 1.77% against 1.50% in the previous quarter.
(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)