India’s largest public lender State Bank of India will be announcing its third quarter earnings today. Rajiv Mehta, banking analyst, India Infoline expects continued stress and estimates slippages of around USD 87 billion quarter-on quarter.
According to him, the gross non-performing assets are likely to go up to 5.9 percent as compared to 5.6 percent in previous quarter and so, there is likely to be deterioration in the asset quality.
However, Mehta expects the net interest margins to improve marginally in the current quarter.
Below is the interview of Rajiv Mehta with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: What are you expecting on asset quality from State Bank of India (SBI)?
A: We are expecting a continued stress. Our estimate for slippages is about USD 87 billion which is a stable delinquency on sequential basis, but the annualised ratio could be in the range of 3-3.5 percent. For restructuring any number above Rs 7,000-8,000 crore could be disappointing, so net-net we are expecting gross NPAs to go up to 5.9 percent as compared to 5.6 percent in the previous quarter and so, we are expecting a bit of deterioration in the asset quality.
Latha: Is that factored in if it went to 5.9 percent or will the stock take another knock?
A: At the current prices for a lot of PSU banks it is not just the current quarter, but the next few quarters being bad is already priced in to an extent. I do not think we will see an adverse reaction from the current levels if we see asset quality panning out the way we are looking at.
Sonia: For how many more quarters is SBI likely to deal with such a high NPL situation?
A: If you look at what has actually driven the uptick in the gross NPAs for SBI over the past 6-7 quarters, it is small and medium enterprise (SME), mid-corporate piece and the agri piece. We are yet to see participation of large corporates. There are a few names amongst large corporates that are known to be in trouble, but are yet to be recognised by larger banks either in the form of restructured assets or slippages. So, if we have an extended macro consolidation as well as an extended tightening of rates or even a pause that can actually press a lot of stress on the banks, I think the next few quarters could turnout to be worse than what we have seen.
Latha: Anything else you will watch out in the numbers?
A: Net interest margins (NIM). SBI has been delivering better NIMs as compared to other PSU banks. We would want to watch out whether the NIMs are improving on sequential basis, because the cost of deposits for the bank has been stable over the past few quarters. So, we are expecting that NIMs could marginally improve in the current quarter.
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