SBI Q4 preview: SBI Cards stake sale to aid profitability; NPA levels eyed

According to analysts, gains from SBI Cards stake sale, worth Rs 3,000 crore, may support profitability.

India’s largest public sector bank, State Bank of India (SBI), is scheduled to report its March 2020 quarter result (Q4FY20) on Friday, June 5. While analysts are positive on the bank’s net profit, which they expect to jump on a year-on-year (YoY) basis, loan growth is seen logging a tepid growth. Management’s commentary on anticipated second wave of stress will be watched out for, analysts say. Given SBI's dominant exposure in the area, they expect some provisions to be made this quarter.

At the bourses, SBI has underperformed the benchmark Nifty50 during the current financial year, ACE Equity data show. Between April 1 and June 2, the stock price has plummeted 13.5 per cent, compared to 16 per cent gain in the benchmark Nifty50. Nifty PSU Bank, meanwhile, has slipped 7.7 per cent during this period.

Kajal Gandhi, research analyst at ICICI Direct, pegs the bank’s net profit at Rs 8,245 crore during the period under review, up 884 per cent YoY, from Rs 838 crore clocked in the year-ago quarter. Sequentially, this would translate into 47.6 per cent growth from Rs 5,583 crore clocked in the December 2019 quarter (Q3FY20). She adds that gains from SBI Cards stake sale, worth Rs 3,000 crore, may support profitability.

However, a more optimistic estimate given by analysts at Nirmal Bang Institutional Equities pegs the net profit at Rs 9,500.2 crore, a substantial growth of 1,033.1 per cent on a yearly basis.

Meanwhile, Pritesh Bumb, analyst at Prabhudas Lilladher, gives a conservative estimate of Rs 2,018,9 crore and cites lower interest rates and slower loan growth, which could impact net interest income (NII), coupled with higher provisions as the key reasons that may cap profit growth. He sees the NII at Rs 24,049.9 crore, up just 5 per cent YoY, from Rs 22,954 crore reported in Q4FY19. Sequentially, the income is seen declining 13.4 per cent from Rs 27,778.8 crore.

Analysts at Nomura, however, see the NII growing 12 per cent YoY, but slipping 7 per cent QoQ, to Rs 25,733.6 crore during the March quarter.

Loan growth

According to estimates by Nomura, the Q4FY20 loan book growth may stand at at Rs 22.98 trillion, up 5.2 per cent YoY and 4.5 per cent QoQ. Besides, they expect further compression in net interest margins (NIMs), at 2.86 per cent, adjusted for one-offs in Q3FY20. The bank’s domestic NIM was 3.02 per cent in Q4FY19 and 3.59 per cent in Q3FY20.

“We expect lower loan growth of 5-6 per cent YoY and deposit growth at 7 per cent YoY, in spite of Q4, due to Covid-19 outbreak,” wrote Gandhi of ICICI Direct in the results preview note. Those at BOBCAP, too, believe that loan growth may remain weak at 5-6 per cent YoY, but deposits could see a sharp uptick, especially in the current account-savings account (CASA) segment.

Asset quality

Nomura pegs the lender’s gross slippages at Rs 8,500 crore for Q4FY20, down significantly from Rs 16,525 crore seen in Q3FY20. In Q4FY19, the slippages during the quarter were at Rs 7,505 crore. Net slippages, meanwhile, are seen at Rs 1,500 crore. 

That apart, analysts see the bank setting aside provisions anywhere between Rs 9,278.8 crore and Rs 12,326.1 crore. “We peg slippages at Rs 8,000 crore, while non-performing assets (NPA) provisions are seen moderating to Rs 9,900 crore. Investment provisions write-back can lead to further decrease in overall provisions. The amount would not be comparable sequentially as Essar provision write-back was huge at Rs 4,990 crore,” said Kajal Gandhi of ICICI Direct. In Q4FY19, provisions were at Rs 16,501 crore, while it was Rs 7,252.9 crore in Q3FY20.

In Q4FY19, provisions were at Rs 16,501 crore, while it was Rs 7,252.9 crore in Q3FY20.

As for NPA ratios, gross NPA ratio is seen at 6.48 per cent, down from 7.53 per cent in Q4FY19 and 6.94 per cent in Q3FY20.