State Bank of India, the country's largest lender, is likely to see a decline in profitability due to higher provisions, but could get support from lower tax cost for the quarter ended December 2020 YoY. The bank will release quarterly scorecard on February 4.
Net interest income is expected to grow in the range of 2-4 percent due to high base and fall in deposit rates with loan growth around 6-8 percent YoY. The corresponding period was boosted by Essar Steel recovery.
"We expect slower growth in NII (4 percent YoY) given the recent cuts in lending yields and deposit rates. Loan growth to be subdued at around 8 percent YoY and NIM (core) unchanged QoQ at around 3.1 percent," said Kotak Institutional Equities which expects gradual recovery in non-interest income led by recovery in written-off loans and treasury income.
Prabhudas Lilladher, which sees 6.9 percent YoY loan growth, said NII growth could remain tepid as base quarter has Essar steel recovery interest (had biggest share), while lower treasury gains, lower recovery from write off to impact pre-provision operating profit.
Kotak expects slippages at 3 percent of loans (subject to court ruling) led by the retail and SME portfolio.
"Focus would be on the quantum of restructured loans that is likely to happen by Q4FY21. A few corporate NPLs got resolved this quarter," said the brokerage.
Kotak and Prabhudas Lilladher see around 45 percent YoY increase in loan loss provisions, while tax cost could fall in the range of 60-70 percent YoY.
"Provisions are likely to continue as bank has relatively made lower COVID provisions to safeguard balance sheet," said Prabhudas Lilladher.
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