SBI extends gain post September quarter results

The stock gained nearly 4% to Rs 345 in intra-day trade, extending its Friday's 6% surge on the BSE

State Bank of India (SBI) gained nearly 4% to Rs 345 in intra-day trade, extending Friday’s 6% surge on the BSE, after the bank’s asset quality improved sequentially in September quarter (Q2FY18).

The gross non-performing assets (NPAs) declined to 9.83% in Q2FY18, as against 9.97% in Q1FY18. Net NPAs, too, fell to 5.43% of the net advances at the end of second quarter this fiscal, from 5.97% in the previous quarter. The bank’s slippage ratio accretion of fresh bad loans as a percentage of total loan book) declined to 1.85% in Q2, as against 5.38% in the June quarter.

“Contrary to Q1, SBI delivered lower than expected non-performing loans (NPL) formation. While NPL volatility would persist, we are near the end of NPL recognition cycle & recovery/resolution will be key,” analyst at Jefferies said in company note, with ‘buy’ rating on stock with price target of Rs 385.

“Slippages in the quarter were at a sharp contrast to the prior quarter. While the Street may celebrate, we don’t believe this is the new trend for the bank – we believe slippages will remain volatile given the nature of the large assets under stress. However, we are quite certain that the NPL recognition cycle is much closer to its peak than any time in the past and the focus will soon move to recoveries and earnings strength,” it added.

According to analysts at IIFL Institutional Equities, the management’s commentary on asset quality remained guarded; as it expects volatility in NPL trend, driven by the corporate sector.

This together with its intent to increase provision coverage suggests loan loss provisions (LLP) would remain elevated over the medium term. Pressure on margins due to sustained decline in loan yields and reduced contribution from trading income will likely exert pressure on operating income and profit, the brokerage firm said in result update.

Apart from normalisation of credit cost being a key driver of improvement in profitability, the bank is likely to focus on rational pricing of credit and increase its thrust on technology to improve productivity and drive improvement in profitability, it added.

At 11:39 AM; the stock was trading higher by 1.4% at Rs 338 on the BSE, as compared to 0.46% decline in the S&P BSE Sensex. A combined 25.35 million shares changed hands on the counter on the BSE and NSE so far.