In the past one month, SBI has outperformed the market and is up 9 per cent, as compared to a 2.8 per cent rise in the S&P BSE Sensex. In the past six months, it has rallied 34 per cent against a 22 per cent surge in the benchmark index.
SBI has shown strong improvement in asset quality, with gross non-performing assets (GNPAs) declining 43 per cent in the past three years and PCR increasing to 68 per cent (this hovered around the 40s four years ago). Fresh slippages have also moderated sharply to 1.2 per cent in FY21 (2.5 per cent in 1QFY22), which is lower compared with many private peers.
“SBI appears well-positioned to report a strong uptick in earnings, led by moderation in credit costs, as the bank has strengthened its balance sheet and increased its PCR to around 86 per cent. It has PCR of around 86 per cent on corporate NPAs,” Motilal Oswal Financial Services said in the financial sector Q2 results preview.
SBI inarguably has one of the best liability franchises (CASA mix: 46 per cent); this puts it in a better position to manage yield pressure, the brokerage said. Moreover, it expects that a low cost of deposits would continue to support margins to a large extent. Subsidiaries – SBI MF, SBI Life Insurance, SBI Cards, and SBI Cap – have exhibited robust performances in the last few years, which could result in value unlocking, the brokerage firm added.
“We like SBI among PSBs for its strong liability profile, high retail orientation, reasonable capital position, and sharply improving RoA/RoRWA/RoE, given renewed focus on profitability while maintaining market dominance and portfolio quality. We retain Buy/OW in EAP with a revised TP of Rs 600, valuing core bank at 1.4x September 23E ABV and subs/investments at Rs 185,” analysts at Emkay Global Financial Services had said in the June quarter result update.
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