SBI Q3 Earnings Preview: Net profit to jump 58% on robust loan growth

SBI said "necessary arrangements" have been made in view of the strike call

The State Bank of India (SBI) is expected to report a 58 percent year-on-year (YoY) jump in net profit for the December quarter on the back of a drop in provisions, and a healthy 24 percent growth in net interest income.

The average estimate of a poll of eight brokerages by Moneycontrol puts SBI’s net profit at Rs 13,360 crore for the quarter, up from Rs 8,431.9 crore in the corresponding period a year ago. Net interest income (NII) is expected to be Rs 36,948 crore compared with Rs 30,687 crore a year ago. SBI will detail its quarterly results on February 3.

Analysts expect the bank’s interest income to be buttressed by robust loan growth and stable net interest margins (NIM). Analysts at ICICI Securities expect the loan growth to be 20 percent, while Kotak Institutional Equities is expecting a loan growth of 18 percent. Both the retail and corporate loan book may show strong expansion, according to analysts.

Stable margins may also contribute to the growth in net interest income. Kotak analysts estimate margins to improve by 10 basis points (bps) sequentially. One basis point is one-hundredth of a percentage point. The lender’s loan mix, along with a large portfolio of low-cost current and savings deposits, should contribute to margin improvement.

“Forty-one percent of SBI’s lending portfolio is linked to MCLR, 34 percent is EBLR-linked, 21 percent is fixed rate, and the rest is BPLR, base rate, etc. Bulk of the MCLR-linked portfolio is with a six-month reset. Given this profile, while partial benefit of rate transmission was reflected in Q2FY23, the entire benefit should be visible in H2FY23,” analysts at ICICI Securities wrote in a note.

Asset quality

A drop in stressed assets (hence lower provisioning needs) is another contributor to the robust bottomline growth. Kotak estimates fresh slippages to be contained at around Rs 7,500 crore for the December quarter, and that too mostly from small business and retail loans. The corporate loan book is likely to be resilient. In the September quarter, SBI had reported slippages of Rs 2,399 crore.

Loan resolutions may ensure that upgrades and recoveries hold up, although these may slow sequentially. Upgrades and recoveries amounted to Rs 5,207 crore during the September quarter.

The lender’s provisions would be towards fresh slippages and to keep the coverage ratio elevated. Analysts do not foresee any large mark-to-market hit on the bank’s investment portfolio. This would ensure that operating profit growth is at a healthy 24 percent for the December quarter. Analysts at Prabhudas Lilladher have increased their earnings estimate for SBI by 6.5 percent for the whole of FY23 in anticipation of lower provisions.