Earnings preview: SBI Q2 profit may fall 80%; provisions to remain elevated

State Bank of India (SBI) is scheduled to announce its September quarter results on Monday. After reporting a net loss of Rs 48.75 billion for Q1FY19 (April – June 2018), SBI is expected to post profit for the quarter under review. However, the numbers are likely to be lower on year-on-year (YoY) basis. Analysts at Sharekhan, for instance, see 81 per cent drop in net profit at Rs 3 billion. Emkay Global, too, expects the profit to come in at Rs 9.2 billion, down nearly 42 per cent YoY.  

Here is how analysts see the bank performing on key parameters:

LOAN GROWTH

The bank's domestic loan growth is likely to improve (but below industry average), driven by retail loans and some corporate lending. However, international book is expected to decline, analysts say.

"We expect loan growth at nearly 10 per cent YoY and net interest margin (NIM) to decline/flat QoQ nearly 2.8 per cent (one-off interest income booked in 1QFY19). Non-interest income is expected to be flat due to a steep decline in treasury income but partly offset by higher recovery from written-off loans," said Kotak Securities in a result preview note.

NET INTEREST INCOME

On the operational front, though margins are expected to ease off QoQ, net interest income (NII) growth may remain steady at 10 per cent YoY. Provisions are expected to remain elevated, thereby leading to loss of nearly Rs 15.58 billion. Post decline in gross non-performing assets (GNPA) in Q1FY19, asset quality is seen remaining steady. Exposure to stressed power sector and IL&FS and its impact remains under watch.

ICICI Securities says, "For SBI, loan growth is seen remaining steady at nearly 5 per cent YoY, primarily contributed by the retail segment. With no large resolution in the quarter, interest reversal, increase in margins and decline in NPA, led by resolution of large steel account, seen in Q1FY19 will be unavailable."

ASSET QUALITY

Motilal Oswal Financial Services expects credit cost to moderate from existing levels, with resolution from NCLT referred accounts to provide some relief. Key issues to watch for in today's results include performance and guidance on asset quality and retail slippages, recoveries from resolution of NCLT accounts, outlook on power sector assets and macro developments on asset quality.