SBI Shares Rise 74 percent in Q2 Net Profit, Several Other Bank Shares Rise

Mumbai: On November 7 investors lapped up shares of State Bank of India (SBI) after the banking giant reported a strong, all-around performance for the quarter that ended September 2022, leading to earnings well above what experts had assessed.

The state-owned lender said its net profit surged 74 percent from a year earlier on better asset quality and solid loan growth. Its net interest income surged 12.83 percent to Rs 35,183 crore for the reported quarter, keeping with the improving pattern of the previous two quarters.

Credit growth during the quarter was amazing, beating even some of the top private banks. The biggest bank in the country said the loan growth of over 20 percent year-on-year lifted core interest income and working benefit growth. Market experts at HDFC Securities highlighted that net interest margin (NIM) reflation was sharper than expected at 3.2 percent (a rise of 15 bps sequentially) and is supposed to improve further in the near term, with full MCLR impact yet to play out.

The broker tweaked its FY23-24 evaluations to factor in better NIMs and higher near-term loan growth. It retained the buy tag with a target price of Rs 700, rating core bank at 1.3 times the September 24 adjusted book value. On November 7, the stock traded up 4 percent to Rs 617.55.

An analyst at ICICIdirect, Ms. Kajal Gandhi also set the target price at Rs 700 for the counter, adding that SBI with its greater size has reported consistently upbeat performance with this quarter seeing better than average growth in earnings and return ratios. “The stock, long due for re-rating, should see a strong positive reaction,” she said.

As per Ms. Gandhi, key triggers for future value execution is likely to be strong credit growth guidance of 14-16 percent, steady NIMs with adequate provision buffer, improving Return on Equity (RoE) trajectory, and Proceeded traction in customer & business accretion via Yono (Digital Banking App of SBI). Any value unlocking in subsidiaries will further help the stock prices to appreciate.

A decrease in the SBI’s bad loan pile as well as a more keen loan growth has improved asset quality ratios in a big way for the quarter. On a net basis, bad loans were 0.80 percent of the loan book compared with 1.52 percent a year ago. This meant that the bank’s loan loss provisioning requirements have descended.

An analyst from LKP Securities, Ajit Kumar Kabi said he assumes SBI to post an RoA and RoE of 0.9 percent and 15 percent by FY24 led by healthy balance sheet growth along with higher provision coverage ratio and stable asset quality.

Several other public sector bank stocks, too, were in huge demand on November 7. The Nifty PSU Bank index was up 5.65 percent, because of a rally in all constituent stocks led by the Bank of Baroda that jumped over 11 percent.