Broad-based performance, profitability have taken most by surprise and the bank is in a position to gain from this.
A sliding stock market was resurrected on Thursday by the surging State Bank of India stock, which touched a new high after surprising analysts with stellar results. The optimism in the market stems from the broad-based performance. The net interest income grew 45 per cent over the corresponding period of the previous financial year and around nine per cent over the March quarter.
The June quarter usually witnesses sluggishness in credit offtake and earnings. The net interest margin (NIM) has been growing on a sustained basis every quarter and is at 3.18 per cent at present. The question now is whether this performance would be sustainable. If one goes by the bank's management, the net interest income growth of 45 per cent might not be.
However, it would remain high at 30-40 per cent. For a bank of SBI’s size, this in itself would be an achievement, according to analysts. The NIMs are expected to sustain as the bank would see a growth in advances that would be better than the industry's standards. But high-cost deposits have been cut down and the June quarter witnessed an 11-per cent reduction in interest expense, even as interest on advances increased 8.62 per cent.
This is an area that will be closely watched as rates have started hardening and SBI is still to announce a hike. The strong movement in current account and savings account (Casa) – a source of low cost of funds – has risen dramatically to 47 per cent — a 906-basis-point growth over the previous year. This means almost half of the bank’s funds are low cost.
This would be the critical advantage, reckon analysts. Operationally, too, the bank has managed to rationalise employee costs and the overall cost-to-income ratio has declined substantially by 1,305 basis points to 44.20 per cent, as of June. The concern, therefore, would be about the asset quality as non-performing assets have risen. The unfolding of the interest rate scenario would also have a bearing.
On the valuations front, SBI is expected to enjoy a premium of 20-30 per cent over that of its peers. The upside in the share price, however, is not expected to be very handsome.