SBI's March quarter showing impresses Street; stock jumps over 5%

Sequential comparisons indicate economic activity did not pick up

The Q4, 2020-21, results of State Bank of India (SBI), India’s largest lender, beat expectations. The stock jumped over 5 per cent on the National Stock Exchange. SBI reported an 80 per cent year-on-year (YoY) rise in net profit to Rs 6,450.75 crore, which beat consensus estimates.  

Provisions and contingencies fell to Rs 11,051 crore against Rs 13,495.1 crore for the corresponding period a year ago. The net interest income (NII) saw growth of 19 per cent YoY to Rs 27,067 crore. The asset quality improved as the gross non-performing assets (NPA) ratio came in at 4.98 per cent of assets in Q4, down from 6.15 per cent a year ago. Similarly, the net NPA ratio (bad loans not covered by provisions) improved to 1.5 per cent of assets in Q4, versus 2.23 per cent in Q4, 2019-20.

But a sequential comparison shows the performance was not quite as good as one hoped for. This is important given the low base effect of Q4FY20. Compared sequentially to Q3FY21, SBI did post a 24 per cent rise in PAT, from Rs 5,196 crore to Rs 6,450 crore. But the NII in Q3FY21 stood at Rs 28,820 crore, which was higher than the NII in Q4.

The asset quality improved slightly QoQ if accounted for the pro-forma estimate of NPAs. The gross NPA ratio was 4.77 per cent in Q3 and 5.44 per cent with pro-forma estimate, versus 4.98 per cent in Q4. The net NPA ratio was 1.23 per cent in Q3 and 1.81 per cent with pro-forma, versus 1.5 per cent in Q4. Sequentially, provisions increased 6.9 per cent.

Domestic credit growth stood at 5.67 per cent YoY, driven by retail advances that grew 16.47 per cent YoY and contributed 36.19 per cent to the loan book. Corporate advances remained subdued and are not expected to pick up until the second half of 2021-22. Non-interest income increased 21.6 per cent YoY to Rs 16,225.32 crore in Q4FY21. Total deposits grew at 13.56 per cent YoY, of which current account deposits grew 27.36 per cent YoY, while saving bank deposits grew 14.79 per cent YoY.

SBI is a good proxy for the semi-urban economy due to deep rural penetration. Looking at results objectively, credit growth is not high and sequential comparisons indicate economic activity had not picked up much since Q3. Provisioning remains high in absolute terms.

While other major PSU banks have not yet declared results, most private sector majors have declared. Apart from SBI, a sample of 15 banks (mainly the private sector) have shown flat credit growth YoY in aggregate. But allied to a sharp drop of 12 per cent in interest costs, there’s been a 32 per cent rise in reported PAT YoY. This trend fits with SBI’s results, such as the expansion in NIM with low credit growth. The Q1FY22 will be muted due to the second wave, which will impact retail due to the new trend of job losses.

 The Bank Nifty was driven up 4 per cent by SBI. SBI has returned an amazing 163 per cent in the past 12 months and 22.5 per cent in the last month, outperforming the Bank Nifty, which is up 94 per cent in the past 12 months.