SBI share price gains 2% ahead of June quarter results; brokerages see improvement in asset quality

State Bank of India (SBI) share price gained 2 percent intraday on July 31 ahead of its June quarter earnings. The bank is expected to see sharp spike in Q1FY21 profitability led by stake sale in life insurance business, but likely additional COVID-19 provisions may limit the growth.

The growth in net interest income could be around 10 percent year-on-year for the quarter, with loan growth at around 7 percent and stable net interest margin for the quarter.

The stock price was trading at Rs 191.30, up Rs 4.75, or 2.55 percent at 09:54 hours. It has touched an intraday high of Rs 191.55 and an intraday low of Rs 186.85.

It was also one of the most active stocks on NSE in terms of volumes with 1,63,92,832 shares being traded.

Brokerages expect improvement in asset quality on sequential basis with lower slippages than Q4FY20, while provisions could see increase on YoY basis due to COVID-19 but sequentially provisions could be lower.

“We expect higher focus on NII (13 percent YoY) given the recent cuts in lending yields and deposit rates. Loan growth will be subdued at around 7 percent YoY and NIM (core) unchanged QoQ at around 2.95 percent. Treasury income would include gains on account of stake-sale in SBI Life Insurance,” said Kotak Institutional Equities which sees 191 percent YoY growth in profit and 39 percent in pre-provision operating profit (PPoP).

Kotak expects slippages at 2 percent of loans mostly from agriculture (seasonal unless under moratorium), SME loans. It expects moratorium ratio to decline further and mostly led by the retail/SME segment.

“We expect slippages mostly from SME loans, but the pace of accretion to be largely better than Q4,” said Sharekhan.

ICICI Securities also feels the moratorium of 23 percent is expected to decline in line with peers led by retail & SME segments. “We factor in higher slippages in agri due to seasonality and loan loss provisions of Rs 9,670 crore and overall provisions at Rs 10,360 crore versus Rs 13,495 crore in Q4FY20, which had excess provisions booked. Hence, net profit is likely to grow 100 percent YoY and 31 percent QoQ.”

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