Shares of State Bank of India (SBI) hit a record high of Rs 670, gaining 3 percent on the BSE in Wednesday’s intraday trade, amid heavy volumes. In the past two trading days, the stock of the largest state-owned lender has rallied 4 percent on the back of a strong growth outlook over the medium term. The stock price of SBI surpassed its previous high of Rs 660.40 on December 20, 2023.
As many as 10.26 million equity shares of SBI changed hands cumulatively on the NSE and BSE in the first 32 minutes of trade.
Among PSU banks, SBI has a healthy provision coverage ratio (PCR), adequate capitalization, a strong liability franchise, and an improving asset quality outlook, making it the best play of the resilient Indian economy, according to analysts. They said that healthy business growth, along with stable margins and asset quality, is likely to boost profitability.
In the October-December quarter (Q3FY24), SBI reported a 35.5 percent year-on-year (Y-o-Y) decline in net profit at Rs 9,164 crore, due to Rs 7,100 crore provisions for pension liabilities. The bank had posted a net profit of Rs 14,205 crore in the same period of the previous year (Q3FY23).
Dinesh Khara, chairman, SBI said the one-time provisions (pension of Rs 5,400 crore, dearness allowance of Rs 1,700 crore) impacted the profitability in the third quarter. The bank expects to plow back Rs 40,000 crore in profits in FY24.
SBI’s Net Interest Income (NII) expanded by 4.59 percent to Rs 39,816 crore in Q3FY24, compared to Rs 38,069 crore in the same quarter a year ago.
Net interest margin (NIM) declined to 3.34 percent in Q3FY24, compared to 3.69 percent in Q3FY23. The management said SBI is guiding NIM to be around three basis points plus\minus around the current NIM (3.34 percent).
Asset quality continued to improve in Q3FY24. The bank’s Gross Non-Performing Asset (GNPA) ratio was 2.42 percent at the end of December, improved by 72 basis points Y-o-Y. The net NPA ratio was at 0.64 percent, improved by 13 basis points Y-o-Y.
With stable asset quality, analysts at Axis Securities believe, credit costs would remain under control, thereby aiding the bank to deliver a sustainable return on asset (ROA). Thus, despite elevated opex and provision on wage revision, the brokerage firm believes, that improvement in asset quality would support the bank’s profitability in FY24.
The management anticipates lower wage provisions at Rs 5,400 crore in Q4. Consequently, we expect improved operating profitability in FY25, Motilal Oswal Financial Services (MOFSL) said.
The brokerage firm has maintained a ‘buy’ rating on SBI with a target price of Rs 800 per share. The bank has various levers such as the credito-to-deposit (CD) ratio and MCLR repricing to keep margins stable. Business growth remains robust, with signs of a recovery in the corporate segment, MOFSL said in the result update.
Asset quality remains healthy as the GNPA ratio improves further and the restructured book is well-managed at 0.5 percent of advances, while the SMA pool stands at 12bp of loans. The brokerage firm estimates SBI to deliver RoA/RoE of 1.1 percent/19.6 percent in FY25.
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