Asset quality is expected to be improving sequentially as well as quarterly, but slippages may remain elevated.
The country's largest lender State Bank of India (SBI) will declare its December quarter results on January 31.
Analysts expect Q3FY20 profit to rise more than 80 percent year-on-year (YoY) driven by recovery from the resolution of Essar Steel and lower provisions. Pre-provision operating income and NII could also support profitability.
Net interest income, the difference between interest earned and interest expended, is expected to rise 9-12 percent YoY in the quarter ended December 2019 with loan growth of around 6-10 percent YoY and a slight increase in net interest margin (NIM) YoY.
"We expect a volatile performance due to large recovery in NPLs (Essar, JP Power, Ruchi Soya, RattanIndia Power) as the accounting treatment is likely to be different for each recovery. Loan growth will be subdued at around 6 percent YoY and NIM (core) unchanged QoQ at around 2.9 percent. Reported NIM would have one-off from NPL recovery," said Kotak Institutional Equities which expects profit to rise 96 percent YoY and NII to increase 19 percent YoY.
Edelweiss also feels profitability will be supported by write-back on account of Essar steel. However, a part of that will be offset by higher divergence (Rs 4,600 crore was left to be provided) and provisions on DHFL.
"We expect loan growth to be steady, with support from the retail portfolio and opportunistic corporate growth," said the brokerage.
Asset quality is expected to improve sequentially, as well as quarterly, but slippages may remain elevated.
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"We expect slippages at 2.7 percent of loans led by a couple of large-ticket loans (NBFC and power). Provisions would be lower (down 45 percent YoY and 30 percent QoQ) due to higher recovery from bad loans," Kotak said.
Motilal Oswal, which expects slippages to remain elevated at around 3.1 percent, said gross non-performing assets as a percentage of gross advances falling 50bps QoQ and net NPA declining 10bps QoQ.
"Slippages could rise from Agri and NBFC portfolio, but several recoveries from NCLT and power accounts may aide gross NPA levels," Reliance Securities said.The stock gained 23.2 percent during the December ended quarter, outperforming both Nifty Bank (up 10.5 percent) and Nifty50 (up 6 percent).