India's banking behemoth - the State Bank of India (SBI) will announce its first quarter (April-June, FY14) earnings on Monday, August 12. The country's largest lender is expected to report a fall of 5 percent, year-on-year (YoY), in its first quarter (April-June) net profit to Rs 3,565 crore. Net interest income (NII) or the difference between interest earned and paid out, is likely to grow at a muted pace of just 2 percent YoY to Rs 11,288 crore, according to a poll estimate by CNBC TV18.
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"In line with other large public sector lenders, SBI too may report higher non-performing assets," Dinesh Sukhla, a banking analyst from Sharekhan brokerage told moneycontrol.com.
"The bank's net interest margin (NIM) is under pressure. It has been reporting consecutive declines for the last few quarters. Off late, it has shifted focus to low yielding assets where it will earn less margin. While it is focusing more on home loans, it is also concentrating on top rated companies for corporate credit," he said.
A bank can earn higher volume of business through low yielding loans, which are less prone to defaults irrespective of any weakness in the economy. However, the net interest margin (NIM) is limited on those loan products.
For example, an AAA-rated company is undoubtedly a good bet for a bank to lend in terms of credit quality but the lender cannot charge a high rate of interest. Similarly, offering lowest rate of interest on home loans (9.95 percent up to Rs 30 lakh) SBI can get huge volume but NIM will be less although, home loan borrowers mostly repay loans right in time.
Domestic NIM stood at 4.17 percent during the quarter ended March 31, 2012. Since then, it has been falling continuously to stand at 3.66 percent in the Jan-March quarter, 2013. Any stabilisation in NIM, according to analysts, will be a positive for the stock.
SBI is facing stress in some corporate loans pertaining to jewelry, steel and textile industries. Accordingly, the amount of fresh loan recast may go up. When a borrower cannot repay loans in time and asks for relaxation of orginal terms and conditions, it is called recast or restructuring of loans.
In the previous quarter, total outstanding restructured loans (not fresh restructuring) stood at about Rs 8,700 crore as against Rs 2,800 crore in the October-December quarter. Fresh slippages stood at around Rs 5,900 crore as against 8,100 crore.
The bank had expanded its loans by 21 percent to Rs 10.46 lakh crore on standalone basis, surpassing the industry credit growth at around 14 percent in 2012-13. Its consolidated credit book (including its group banks) had increased 20 percent y-o-y to Rs 13.93 lakh crore.
Deposits had grown a little more than 15 percent y-o-y basis to Rs 12.03 lakh crore. Consolidated deposit book too had risen at a similar pace to Rs 16.27 lakh crore.
"In the aftermath of Saradha scam in West Bengal, SBI, according to some market talks, may have mopped a fair share of deposits from those erstwhile Saradha depositors, who are now looking safe investment bets," said an investor relation manager with a large domestic broking company.
Since last one year, SBI shares dropped more than 19 percent as compared with a 7 percent fall in the Bank Nifty – the broader index for banking stocks.