)
Country's largest Bank State Bank of India (SBI) is likely to put up a poor show for the March 2013 quarter. Consensus Brokerages estimates indicate to an 8.7% fall in the bank's net profit and 1.4% decline in its net interest income (NII).
Industry leading loan growth (of 18-20%) will be overshadowed by NII compression driven by weak margins. Analysts believe the bank will be a key beneficiary of housing loan transfers given its lowest rates. Flattish fee income will be compensated by higher trading gains (Rs 430 crore) leading to 9% increase in its non-interest income. The bank's net interest margin (NIM) is expected to be stable sequentially at 3.4% but could witness a 60 basis points contraction over the March 2012 quarter.
SBI is likely to provide about Rs 800-900 crore towards wage hikes for five months ending March 2013. Higher provisiong for bad loans will further pull down SBI's net profit for the quarter. Analysts expect SBI's gross slippages to be flattish on a sequential basis at Rs 7,000 crore, though restructuring could rise (led by Suzlon account). However, the silver lining could come in the form of improved recoveries,as banks can now upgrade accounts having satisfactory performance for two years as per RBI norms. "Despite an expected decline in earnings, SBI could surprise positively on lower-than-expected provisioning", believes Ashish Gupta, research analyst at Credit Suisse.
Sustainable improvement in asset quality trends will be a significant trigger for SBI going forward. The stock is trading at 1.3 times FY14 estimated adjusted book value which appears inexpensive given that the stock has traded at average valuations of 2 times one-year forward book value."We look for evidence of SBI’s ability to sustain asset quality improvement. We retain our Sell stance, because the stock offers no margin of safety on continued deterioration in asset quality”, says Krishnan ASV, analyst at Ambit Capital.
