SBI Q1 preview: Treasury loss, subdued loan growth may cloud profitability

SBI Q1 Results: Projections on the quantum of decline in net profit vary widely across brokerages as they see a sequential slide anywhere between 7 per cent and 51 per cent

SBI Q1 preview: India’s largest state-owned bank, State Bank of India (SBI), could take a hit on its profits for the April-June quarter (Q1FY23) as the lender nurses treasury losses, said analysts. Projections on the quantum, however, vary widely across brokerages as they see a sequential slide in profit after tax ranging between 7 per cent and 51 per cent.

That apart, tepid loan growth on a quarterly basis may also sour earnings sentiment. The bank is slated to report its earnings on Saturday, August 6.

“Credit growth is likely to follow industry average trend (up 2 per cent quarter-on-quarter, though up 15 per cent year-on-year on a low base) led by sequential uptick in retail, corporate and overseas advances… Rise in bond yields will weigh on treasury gain and there would be mark-down of its non-Held-Till-Maturity (HTM) portfolio,” noted ICICI Securities.

Here’s what key brokerages expect:

Jefferies

Contrary to consensus estimates, the brokerage expects SBI to report decline in net profit even on a yearly basis. It pegs PAT at Rs 5,900 crore, down about 9 per cent from last-year’s (Q1FY22) profit of Rs 6,036.4 crore. Compared with Q4FY22’s profit of Rs 9,113.5 crore, this would be a sequential fall of 35.2 per cent. The net interest income (NII) is expected to rise 15 per cent YoY, but remain flat QoQ, to Rs 31,700 crore. NII was Rs 27,638.4 crore in Q1FY22, and Rs 31,197.9 crore in Q4FY22.

ICICI Securities

On the back of 18 per cent YoY (4 per cent QoQ) improvement in NII, but 42 per cent YoY and QoQ contraction in other income, the brokerage expects total revenue to stay flat at Rs 39,391 crore during the quarter under review. SBI has not tweaked savings rate and rise in retail term deposit (TD) is also contained at 20-25 basis points. Thus, net interest margin (NIMs) would at least sustain at 2.8 per cent.

It pegs operating profit at Rs 17,314 crore (down 9 per cent YoY and 12 per cent QoQ), and net profit at Rs 8,227 crore (up 26 per cent YoY/down 10 per cent QoQ).

“We expect SBI to deliver over 11 per cent core return on equity (RoE) aided by growth build-up, contained credit cost, and steady margin profile. Operating expenses will lag balance sheet growth driving operating leverage benefit,” it added.

Total provisions are seen at Rs 9,087.2 crore, compared with Rs 10,052 crore YoY, and Rs 7,236.7 crore QoQ.

Kotak Institutional Equities

The brokerage expects an operating profit decline of nearly 40 per cent YoY (37 per cent QoQ) driven by treasury losses of Rs 11,300 crore. It also expects net profit to crash 26 per cent YoY and 51 per cent QoQ to Rs 4,474.4 crore.

“We expect slippages at 1.6 per cent of loans (roughly Rs 11,000 crore) mostly driven by SME and retail while corporate will continue to hold up relatively well. The positive trends on recovery and upgradation will continue during this quarter. Most of the provisions for the quarter will be towards reduction in headline NPL ratios,” it said.

Edelweiss Securities

The brokerage anticipates just 1 per cent sequential improvement in NII at Rs 31,630 crore, while it sees treasury losses of Rs 8,500 crore. Combine it with nearly 95 per cent YoY and QoQ fall in non-interest income, the total operating profit is seen at Rs 11,380 crore (down over 40 per cent YoY and QoQ).

The brokerage sees 28 per cent YoY and 49 per cent QoQ decline in net profit at Rs 4,670 crore.

Motilal Oswal Financial Services

The brokerage expects deposits to grow 11 per cent on year to Rs 41.3 trillion during Q1FY23, while loan book growth is pegged at 15.3 per cent YoY to Rs 28 trillion.

Given this, the NII is seen at Rs 32,550 crore (up 18 per cent YoY), and NIM is projected at 3.2 per cent.

It also expects asset quality to continue to see a steady improvement with gross non-performing asset (GNPA) ratio at 3.8 per cent as against 4 per cent QoQ, and 5.3 per cent YoY. NNPA is pegged at 1 per cent vis-à-vis 1 per cent QoQ, and 1.8 per cent YoY.

Emkay Global

The brokerage has the most optimistic net profit estimate for the bank at Rs 8,488 crore, down only 7 per cent QoQ, on the back of healthy growth, NIMs/fees, and contained opex/credit cost.