SBI hits three-year high on stable asset quality in Q2

The stock up nearly 3% to Rs 2,860, extending its Friday's 2.5% gain on National Stock Exchange.

State Bank of India (SBI) has moved higher by nearly 3% to Rs 2,860, extending its Friday’s 2.5% gain on NSE, after the bank’s asset quality was stable with July-September 2014 (Q2) gross non-performing assets (NPA) as a percentage of total advances at 4.89% against 4.9% quarter-on-quarter (Q-o-Q). Net NPA was at 2.73% against 2.66% sequentially. Gross and Net NPA stood at 5.64% and 2.91% respectively in September 2013.

Bank’s effort in recovery and a stringent policy towards defaulters seems to be working as is reflected in upgrades which stood at Rs 2,635 crore during the quarter as against Rs 1,362 crore in the previous quarter. Fresh slippages in the second quarter stood at Rs 7,700 crore compared to Rs 9,932 crore in June quarter.

Analyst at HDFC Securities maintains ‘Buy’ rating on the stock with target price of Rs 3,045.

SBI offers the best cyclical play for the expected revival in the Indian economy, given its strong presence across regions/sectors. Thus, nontax provisions (1.3% of loans FY16E) could surprise positively, providing a much needed boost to RoA (0.8% for FY16E). Further, SBIN appears well cushioned on staff related provisions, low dilution risk and relatively low impaired assets (around 6%). Management continuity for the next two years too offers comfort, said analyst in a report dated 15 November 2014.

Key positive was stable asset quality with significant decline in fresh impairments. With macro improvement expected to kick in from H2FY15, SBI remains the highest beneficiary for the same, said analyst at IndiaNivesh.

We continue to maintain buy with upwards revised target price of Rs 3230, said analyst.

The stock opened at Rs 2,794 and touched high of Rs 2,869, its highest level since April 2011, on NSE.  A combined 1.5 million shares changed hands on the counter till 1032 hours on NSE and BSE.