Result Preview: State Bank of India

SBI may beat profit estimates, but asset quality issues to persist

State Bank of India's third quarter numbers are unlikely to spring any major surprise. According to Bloomberg, the consensus analysts estimate for net profit is at Rs 3,031 crore, a 7.2% increase over previous corresponding period.

However, the market believes the bank has been focusing on provisioning and employee liabilities for the last few quarters, and as a result, the profit figures could be closer to Rs 3,200 crore. Morgan Stanley estimates the bank to post a net profit of Rs 3,080 crore.

Despite the improvement in profits, the asset quality is expected to remain an overhang for the market. Nirmal Bang in its result preview note says that asset quality issues may be more important than SBI's earnings. Given the current macro-economic scenario and rising delinquencies, the bank's growth in the coming quarters is expected to slow down.

So what to expect? Nirmal Bang expects the bank's net interest income to grow by 23.4 per cent year on year and 7.2 per cent sequentially. Interest expenses are also expected to grow at the same pace. Morgan Stanley expects impaired loan formation to pick up to 4.3 per cent in Q3 from 3.6 per cent in the first quarter and 4 per cent in the second quarter. The foreign brokerage also expects net interest margin to remain stable sequentially at 3.77 per cent -- hence the growth in net interest income will be driven by volumes.

Despite the improvement in profitability and hopes of a rate cut in FY13, analysts are not very bullish on SBI as non-performing loans and fresh slippages may weaken sentiment.