SBI: Turning over a new leaf, poised to benefit from credit growth

Topics sbi | credit growth  | Q3 results

SBI’s corporate book seems to be in a better position than a year-ago, with corporate gross non-performing assets (NPA) ratio falling from 12.16 per cent last year to 7.54 per cent in Q3
The State Bank of India (SBI) stock has been a market outperformer on the day of its results on Thursday, which has been the trend for almost six quarters in a row.

The bank’s stock hit a fresh 52-week high of Rs 358 before closing 5.7 per cent up even as its numbers were below estimates. Net profit in Q3 declined by 7 per cent YoY to Rs 5,196 crore on the back of weak net interest income at Rs 28,820 crore, up 2.3 per cent YoY. Yet, if the Street rewarded the SBI stock, it perhaps took comfort from easing asset quality issues.

With slippages (fresh accretion to bad loans) at Rs 2,073 crore in Q3, lower than the Rs 2,756 crore in Q2 and Rs 16,525 crore a year ago, analysts at Morgan Stanley note the number is below their estimates.  Analysts at CLSA have upgraded their 12-month price target from Rs 385 to Rs 560. 

“Full-year slippages of 1.5 per cent of loans that we have now in our forecasts is the lowest the bank would have seen in the last 15 years,” they said in a report. Maintaining the provisioning coverage ratio (PCR) at 86.33 per cent (90 per cent without the Supreme Court’s dispensation) is also comforting.


When asked for an assurance on asset quality, Dinesh Khara, chairman, SBI, said he was confident. “We provide for stress upfront, even when we have a rumbling of something (stress) that is building up,” he said. A combination of this approach and a visible improvement in asset quality augurs well for India’s largest bank.

SBI’s corporate books seem to be in a better position than they were a year ago, with the corporate gross non-performing assets (NPA) ratio falling from 12.16 per cent last year to 7.54 per cent in Q3 (factoring in the Supreme Court’s stay). Nonetheless, with an 89 per cent PCR for corporate loans, the picture is encouraging. Consequently, the bank’s slippage ratio at 1.27 per cent or the credit cost ratio at 1.1 per cent is the best since FY14.

That said, pain is unabated in the agri-loans segment, which accounts for a fourth of its gross NPAs in absolute terms. How the asset quality of loans of small and medium enterprises (SMEs) and retail loans shape up needs monitoring, given that much information on this front will emerge only after the Supreme Court vacates its stay on asset classification.

For now, SBI is confident of capping its slippages and loan recasts at Rs 60,000 crore as mentioned in Q2, with Rs 41,216 crore exhausted (less than 1 per cent of the loan book) so far. Also, the bank providing Rs 6,028 crore in addition to loan loss slippages to cover for bad assets (other than the ones coming under the Supreme Court’s stay) indicates that much ground has been covered.

Khara said the bank was advantageously placed to push credit growth. 

SBI’s clean-up act and its undemanding valuations of 0.8x its FY22 estimated book position the stock favourably for investors.



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