Analysis | SBI gives no negative surprises in Q1

In a challenging market environment, the country’s largest lender, State Bank of India (SBI) has delivered a strong set of numbers in the April-June quarter. The asset quality numbers remain at elevated levels yet the trend is in line with the industry.

“No negative should be taken as positive in this environment,” said Sidhharth Purohit, research analyst at Mumbai-based SMC Global Securities. “Incremental stress built up is not very high. Slippages are also on the expected line. Provision Coverage Ratio is down quarter-on-quarter but still close to 70 percent. So very low risk from any likely third wave (sic),” said Purohit.

What has happened on the bad loan segment? Let's take a look at the numbers.

SBI’s gross non-performing assets (GNPA) numbers came at 5.32 percent compared with 4.98 percent in the preceding quarter. But, if one looks at the incremental slippages, during the quarter the bank reported fresh slippages of Rs 15,666 crore compared with Rs 21,934 crore in the preceding quarter. The bank approved loans worth Rs 5,246 crore for the second round of restructuring and has pending applications for Rs 2,056 crore.

Clearly, the State Bank has not escaped the second wave impact. It is seeing pressure on the asset quality. Still, the numbers are in line with some of its closer rivals. For instance, the numbers of Axis Bank, released on July 26, were the latest to confirm the larger trend. The bank’s GNPAs and net NPAs in the April-June quarter rose to 3.85 percent and 1.2 percent, respectively, against the GNPA and NNPA ratio of 3.7 percent and 1.05 percent in the previous quarter.

The same is the case with Kotak Mahindra Bank. The gross NPAs stood at 3.56 percent against 3.25 percent on a sequential basis whereas the net NPA came at 1.28 percent from 1.21 percent. These numbers are in line with the trend shown by other banks—HDFC Bank, ICICI Bank and big NBFCs such as Bajaj Finance (auto loan NPAs of 19.15 percent against 9.31 percent in the March quarter of FY 2021 and just 5.8 percent in the year-ago period), L&T Finance and M&M Finance (where GNPAs rose to 15.5 percent against 9 percent last year).

Of the Rs 15,666 crore fresh NPA additions in Q1, Rs 6,416 crore is from small and medium enterprises book. Loan growth is muted across segments. Domestic credit growth was at 5.64 percent YoY, mainly driven by retail (personal) advances (16.47 percent YoY), agri advances (2.48 percent YoY) and SME (2.01 percent YoY), the bank said.

The profit was higher than Street’s expectations. A CNBC-TV18 poll of analysts had estimated Q1 profit at Rs 6,374.5 crore.

Net interest income (NII), the difference between the interest income from lending activities and the interest paid to depositors, grew 3.74 percent YoY. The net interest margin (NIM) for the quarter stood at 3.15 percent. The domestic net interest margin (NIM) for Q1FY22 came at 3.15 percent, which was lower by 9 bps YoY.

The numbers are largely in line with analyst expectations. "Risk reward is favourable for the stock now," said Purohit of SMC Global. However, just like for other banks, SBI’s performance going ahead will depend on the COVID environment and the pace of vaccinations. The next few quarters should offer a clearer pattern.