India's largest lender the State Bank of India (SBI) is likely to report an 11 percent year-on-year rise in its third quarter net profit at Rs 3,610 crore. Net interest income or the difference between interests earned and paid out, however may fall marginally by 1% to about Rs 11,360 crore, according to a poll estimate by CNBC Awaaz.
"Asset quality is the key thing to watch for SBI's Q3 performance," Saikiran Pulavarthi, a banking analyst from Espirito Santo Securities told moneycontrol.com.
"It seems, the bank has seen deterioration in asset quality early compared to other public sector banks. We believe going forward SBI asset quality will behave relatively better than other state-owned banks. However, it is difficult to say if the asset pain is over for the lender. Even though its home loan portfolio is expanding, it may not have much impact on its interest margin," he said.
After dealing with some big loan restructuring cases, SBI looks to have made the majority of required provisions against those bad loans. However, non-performing assets would likely to pile up in segments like mid-corporates, SME and agriculture.
In the July-September quarter, the bank had expanded its standalone loan book by more than 17% y-o-y to Rs 9.27 lakh crore. As on December 31, 2012; SBI's outstanding for home loans stood at around Rs 1.13 lakh crore, it is learnt.
The growth in loan book is expected to be around 16% in October-December quarter. Moreover, the market is equally concerned about its slippages or the performing loan accounts that slip into non-performing category, during the three-month period.
"SBI may put up a better show on slippages front. We expect the slippages at around Rs 6,000 crore as against Rs 7,100 crore a quarter back. Restructuring book is another important factor. Increase in restructured loans is a negative trigger while improvement in credit-deposit ratio will augur well for the market," said a banking analyst associated with a domestic brokerage.
The core performance is expected to be weak due to subdued non-interest income and higher employee expenses. Net slippages remain high at 1.5%, but lower than its peak levels (3.4% in 2Q FY12).
Due to excess SLR (statutory liquidity ratio or the portion of deposits banks are mandated to investment government bonds), the bank is comfortable on liquidity position. This enables the lender to deploy such funds improving its net interest margin going forward.
A day after the RBI third quarter monetary policy, SBI reduced its base rate by only five basis points to equalize its base rate (at 9.70%) with private sector lender HDFC Bank. Further policy rate reduction would prompt the lender for more base rate cuts.