SBI: Investors should wait for more clarity on moratorium, asset quality

While SBI's management sounded confident and expects no major stress from the moratorium book, it also mentioned that September quarter would give better clarity
State Bank of India's (SBI's) stock surged 7.9 per cent to Rs 187.8 on Friday, even as the country's largest lender disappointed with its muted operating performance for the March 2020 quarter (Q4). Besides asset quality improvement, the management’s positive commentary on loan growth and lower-than-expected moratorium book were the key reasons for the Street's excitement.

While the enthusiasm was partly justified, considering the stock had corrected sharply (still 50 per cent down from its 52-week high) amid worries over asset quality and loan moratorium, some analysts pointed out that with a few details on moratorium missing, it could be early to cheer.

Though SBI's management sounded confident and expected no major stress from its moratorium book, it mentioned that the September quarter would give better clarity. The bank said 83 per cent of its term loan customers (in numbers) have paid two or more instalments (starting March, from when the moratorium is applicable). So, 17 per cent have taken moratorium. The bank did not provide further details, but said that in value terms the figure would be lower. 

Yet, analysts were confused and concerned over asset quality going ahead. “The bank has left (investors) in confusion as far as its moratorium book is concerned, which is different from other banks,” said an analyst from a domestic brokerage who, however, assumed the moratorium book in value terms to be lower.

Lalitabh Srivastawa, vice-president at Sharekhan, said while the good profile of retail customers and lower moratorium in corporate book offer comfort, asset quality trend is a key monitorable.

Second, the management was positive on loan book growth in FY21, which it believed would help negate the impact of lower fees and other income. Here too, a few analysts expect its key operating metrics to remain muted due to the economic slowdown.

In Q4, with about a week's business lost, SBI’s advances rose by just 5 per cent year-on-year. This, along with lower interest rates, led to flat growth in net interest income to Rs 22,767 crore, which was 10 per cent lower than the consensus estimate. Profit before tax jumped by 11 times to Rs 4,970 crore, largely supported by a one-time gain from stake sale in SBI Cards. Even then, it was 34 per cent below estimates of Rs 7,496 crore.

Thanks to the moratorium, slippages or loans turning bad drifted down to 2.16 per cent of advances in Q4, from 2.42 per cent in Q3FY20, but were up 56 basis point year-on-year. This improved gross non-performing assets by 79 basis points, sequentially to 6.15 per cent.

Against this backdrop, investors should wait for clarity on moratorium and asset quality. 
A key comforting factor, however, is that the market value of its subsidiaries/investments, put together, is nearly equal to SBI's market capitalisation.

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