Q2 Preview: SBI may see improvement in asset quality, modest growth in NII

Q2 Preview: SBI may see improvement in asset quality, modest growth in NII


MUMBAI: Top lender State Bank of India (SBI) may report an improvement in asset quality in the quarter ended September, but analysts are divided on the profit performance, and expect it to rise anywhere between 4.7 per cent to as high as 55 per cent.
Net interest income (NII) may have seen muted growth, while net interest margins (NIMs) are likely to be flattish.

Kotak Institutional Equities expects SBI to post a net profit growth of 26.9 per cent from a year ago, while net interest income (NII) may have risen 8.2 per cent.

“We expect slower growth in NII (8 per cent yoy) given the recent cuts in lending yields and deposit rates,” the brokerage said adding that SBI’s loan growth may be subdued at around 7 per cent YoY and core net interest margins (NIMs) may be unchanged QoQ at around 3.2 per cent. It sees a decline in operating profit mainly on account of stake sale gains (life insurance) in the base quarter.

“We expect slippages at 1.6 per cent of loans (subject to court ruling) as the moratorium has now been lifted but the restructuring option would keep this quarter’s slippages on the lower side. We wait to see if the bank would further increase its coverage ratio,” it added.

Motilal Oswal expects SBI to report a net profit growth of 4.7 per cent, while net interest income may have risen 9.3 per cent. The brokerage believes higher credit cost may impact the bank’s earnings, while business growth may remain modest.
It expects asset quality to improve as it sees gross non-performing assets (NPA) at 5.2 per cent, compared with 7.2 per cent a year ago, while net NPA may have come down to 1.7 per cent from 2.8 per cent a year ago.

On the other hand, ICICI Securities expects SBI to post a net profit growth of 55 per cent, helped by lower tax outgo, while net interest income (NII) may have 15 per cent. It expects net interest margins (NIMs) to settle in the range of 3.0-3.2 per cent.

The brokerage said SBI surprised positively reporting the moratorium 2.0 at sub-10 per cent, and hence evaluating the quality of asset profile, restructuring or slippage is similarly expected to be contained at a low single-digit level.

“Outstanding contingency provisions at Rs30bn (excess provisions on HFC exposure + Covid related) and buffer in booking MTM gains on treasury portfolio, will cushion earnings of some stress recognition,” the brokerage said.

“Growth would trend marginally better than the industry as competitive lending rates would help gain market share in corporate as well as secured retail segment,” it added.
Credit: Stocks-Markets-Economic Times

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