SBI Q1FY21 preview: Stake sale gain from SBI Life to cushion Covid-19 blow

Stake sale gain from SBI Life during the June quarter of the current fiscal year (FY21) may be the only saving grace for State Bank of India (SBI) when it reports its Q1FY21 earnings on Friday, July 31. Amid declining interest income and lower net profit sequentially, analysts see India’s largest public sector bank’s business growth to be modest in the recently concluded quarter.

“SBI’s exposure to the stressed pool stands at around 2 per cent of total loans, while its net stressed loans (excluding NNPA) at 0.3 per cent are the lowest amongst corporate banks. The proportion of the moratorium book also stands lower than that of most peers. Further, moratorium availed in the corporate segment remains low. We, nevertheless, cut our earnings estimate as we expect slippages to stay elevated in 1HFY21, along with higher credit cost,” said analysts at Motilal Oswal Financial Services (MOFSL). For the June quarter, they see slippages elevated at around 2.5 per cent.

Those at Phillip Capital expect the slippages to be contained, around Rs 8,300 crore, given the moratorium extended by the Reserve Bank of India (RBI).

On the whole, gross non-performing asset (GNPA) ratio is seen between 5.9 and 6 per cent, down from 6.2 per cent sequentially and 7.5 per cent YoY. Net NPA (NNPA) ratio, meanwhile, is seen at 2.1 per cent.

During the quarter under review, SBI has underperformed the markets. During the three month period, the stock price of SBI slipped 9.3 per cent on the NSE, as against a 20 per cent rise in the Nifty50 index, ACE Equity data show. Besides, the sectoral Nifty Bank index, too, surged 11.6 per cent during the period.

Profitability

Analysts tracking the bank remain divided on the quantum of profit the bank may report for the quarter under review. Centrum Broking, for instance, sees the net profit at Rs 3,796.9 crore, while Emkay Global Financial Services sees it at Rs 3,155.6 crore. Those at HDFC Securities, meanwhile, peg it at Rs 3,330 crore. That apart, outlying figures on the downside and upside estimate the profit to come anywhere between Rs 932 crore (expected by Narnolia Capital) and Rs 6,596 crore (Sharekhan).

“Sale of SBI Life’s 2 per cent stake is expected to add around Rs 1,200- 1,300 crore. Add this to ‘Other Income’, which may grow 41 per cent YoY to Rs 11,300 crore (after gains from SBI Life, declining G-sec yields, and investment spreads due to LTRO gains), net profit is likely to grow to Rs 4,795 crore during the quarter under review, rising 100 per cent YoY and 31 per cent QoQ,” analysts at ICICI Securities noted in their results preview report.

The bank had clocked a net profit of Rs 2,312.2 crore in Q1FY20 and Rs 3,580.8 crore in Q4FY20.

Loan book and interest income

Most analysts see the loan growth as muted amid system-wide slowdown in credit growth. “We forecast weak loan growth at 5-6 per cent YoY, while net interest margin (NIM) could moderate marginally despite the cut in deposit rates,” wrote analysts at BOB Capital.

Analysts at MOFSL see the loan book at Rs 23.4 trillion, flat sequentially but up from Rs 21.3 trillion reported in Q1FY20. Deposits, meanwhile, are seen at Rs 33 trillion, up from Rs 32.4 trillion in Q4FY20 and Rs 29.5 trillion in Q1FY20.

“SBI’s loan book could grow at 6.7 per cent YoY during the quarter under review.  With a marginal improvement in NIM on a sequential basis, we expect NII to grow at 4/5 per cent YoY/QoQ,” said HDFC Securities in its results expectations report.
 

On the upside, NII is pegged at Rs 25,857 crore, clocking a near 13 per cent growth on quarterly as well as yearly basis. While, a conservative estimate for the same pegs it at Rs 23,800 crore.

The bank’s NII was Rs 22,938.8 crore in the year-ago quarter, and was Rs 22,766.9 crore in the March quarter of FY20. NIM, therefore, is pegged at 2.85-3 per cent.