SBI rallies 4%, hits record high of Rs 475 on heavy volumes

SBI appears well-positioned to report a strong uptick in earnings, led by moderation in credit costs, believe analysts

Shares of State Bank of India (SBI) rallied 4 per cent to hit a record high of Rs 475 on the BSE in Monday’s intra-day trade on the back of heavy volumes. The stock of the state-owned banking giant surpassed its previous high of Rs 471.85 touched on September 17, 2021.

The trading volumes on the counter more-than-doubled with a combined 18.19 million equity shares having changed hands on the NSE and BSE till 02:46 pm. In comparison, the S&P BSE Sensex was up 0.40 per cent at 60,297 points. In the past three months, SBI has underperformed the market by gaining 11 per cent, as compared to a 15 per cent rally in the Sensex.

SBI appears well-positioned to report a strong uptick in earnings, led by moderation in credit costs, as the bank has strengthened its balance sheet and increased its PCR (incl. TWO) to around 86 per cent, according to analysts.

"SBI has shown strong improvement in asset quality, with GNPAs declining 43 per cent in the past three years and PCR increasing to 68 per cent (this hovered around the 40s four years ago). Fresh slippage also moderated sharply to 1.2 per cent in FY21 (2.5 per cent in 1QFY22), lower v/s many private peers," Motilal Oswal Financial Services said in its Q2 results preview. SBI inarguably has one of the best liability franchises (CASA mix: ~46 per cent) and this puts it in a better position to manage yield pressure; moreover, a low cost of deposits would continue to support margins, to a large extent, the brokerage firm added.

According to ICICI Securities, in Q2, SBI’s net interest income (NII) is seen flat year-on-year (YoY) at Rs 28,000 crore, with loan growth expected to improve 8 per cent YoY to Rs 25.8 trillion and 9.5 per cent YoY growth in deposits is estimated. Non-interest income seen improving to Rs 11,000 crore, up from Rs 8,500 crore in Q1FY21, led by higher fee income due to unlock.

Net interest margins (NIMs) are seen stable with expectations of firming up later, the brokerage said. "We factor in normalised slippages and overall provisions of Rs 9,200 crore vs. Rs 8,920 crore QoQ. Hence, net profit is likely to grow to Rs 6,854 crore, rising 50 per cent YoY," it added.

As per YES Securities: In Q2, SBI’s NIM will improve slightly due to somewhat lower interest reversals and changing loan mix. DICGC insurance cost being an even quarter phenomenon would show up in 2QFY22. Non- interest income would be slightly lower sequentially as lower trading profit would offset the improvement in fee income. Provisions would decline sequentially somewhat as the bank has a relatively smaller underlying stressed book but there was no significant upfronting of provisions in 1QFY22.