SBI saw credit growth of 14.93% year-on-year, but missed Street’s earnings expectation because of a one-time mark-to-market (MTM) loss, subdued net interest margin (NIM) and elevated slippages.
Despite the concerns among investors, analysts are not worried about the bank’s long-term growth outlook.
This optimism stems from the management’s upbeat commentary. In a post-earnings call, SBI’s management said it is confident of loan growth momentum sustaining in FY23 driven by robust demand across segments. Also, SBI will benefit from the re-pricing of its floating rate loan portfolio, since 74% of the assets are linked to floating rates. This should aid the bank’s net interest income going ahead, said analysts.
The bank’s NIM declined by 10 basis points sequentially in the first quarter of the current fiscal year (Q1FY23), to 3.02% on the back of sharp growth in its overseas loan book—a low-margin business compared to domestic loans. However, the management is hopeful of NIM improving.
“Q1 is a seasonally weak quarter for the entire banking sector, but SBI’s performance was impacted more due to its agri-heavy portfolio," said Gaurav Jani, analyst at Prabhudas Lilladher.
For the coming quarters, movement in slippage and NIMs will be two crucial parameters for SBI investors to watch out for. “We expect slippage to taper off and also see some headroom for NIM improvement. In the near-term, some correction is warranted due to weak Q1 numbers, but from a medium-term perspective, we remain positive on the stock," he added.
Meanwhile, shares of SBI have rallied 13% so far in 2022, beating sector index Nifty Bank’s nearly 8% returns. According to an analyst, the bank’s return ratios are improving and its strong loan growth has kept the stock in better stead. “Although some analysts have trimmed FY23 earnings estimates due to the MTM loss, and the lower NIM being a dampener, a further improvement in credit growth is a key upside trigger," he said, requesting anonymity.
However, on the flip-side, investors should watch out for a steep jump in government bond yields, which do not bode well for SBI’s treasury performance.
