SBI Q3 preview: Nomura predicts a significant 26% year-on-year decline in core operating profit for the third quarter. Key factors to watch include discussions on unsecured loan growth, capital adequacy, and the momentum of the loan book.
SBI is expected to report subdued earnings in the third quarter, primarily attributed to increased operating expenses resulting from wage revision and pension costs. The bank had adjusted its wage growth assumption from 10 percent to 14 percent during the September quarter. Nomura India mentioned that, with the consideration of the wage revision impact in the second half of FY24, the potential risk of wage settlements affecting SBI’s operating profitability will be mostly resolved for the time being.
However, the brokerage believes that “this matter underscores the risks linked to investing in PSU banks, in our opinion.” Nomura forecasts a significant 26% year-on-year decline in the third-quarter core operating profit, highlighting key areas to watch such as comments on unsecured loan growth, capital adequacy, and loan book performance. In the September quarter, SBI reported an 8% year-on-year growth at Rs 14,330 crore, with net interest income increasing over 12% year-on-year to Rs 39,500 crore.
SBI Q3 preview: The bank’s shares have recorded a 0.9 percent gain on the BSE year-to-date, reaching a peak of Rs 660 on December 20, 2023.
Here is what analysts expect from SBI’s third quarter.
Nuvama
We anticipate a robust 3% quarter-on-quarter loan growth and a marginal 4 basis points quarter-on-quarter decline in Net Interest Margin (NIM). SBI has indicated a shortfall of INR 100 billion for the new wage agreement, to be distributed over two-quarters of H2FY24. In Q2FY24, the bank had a one-off wage provision of Rs 3400 crore. Owing to a high base, SBI’s operating expenses will likely increase less sharply than those of other state banks. Core Pre-Provision Operating Profit (PPOP), including catch-up wage provisions, is expected to grow 1% higher quarter-on-quarter than other state banks, influenced by the elevated opex in Q2FY24.
We project slippages to increase from 0.6% to 0.8% quarter-on-quarter due to the bank’s Rs 1250 crore funded exposure to BGR, but the total credit cost is anticipated to remain low at 23 basis points. The bank won’t need to make provisions for BGR, as the account is a paying one but has technically slipped.
Axis Securities
Anticipate robust growth in advances and deposits. Net Interest Income (NII) growth is expected to be restrained, with a potential compression of 5-7 basis points in Net Interest Margins (NIMs). Pre-Provision Operating Profit (PPOP) is likely to decline due to costs associated with wage revision. Credit costs are expected to remain favorable, and the trend of improving asset quality is projected to continue.
Kotak
We expect a Q-o-Q decline of approximately 7 basis points and a Y-o-Y decrease of 19 basis points in net interest margin (NIM). Despite this, we foresee the potential for stable performance, given the loan book structure and the minimal requirement for deposits to support this growth. Operating expenses are anticipated to increase due to costs associated with wage revisions, specifically the impact of the final settlement.
Motilal Oswal
Elevated operating expenses stem from increased investments. Earnings are projected to decrease due to heightened provisions for wages. Continued improvement in asset quality is anticipated, bolstered by a low-stressed asset pool. Key factors to monitor include margins and provisions.
StoxBox
Anticipate strong financial performance from the prominent banking entity, SBI, in Q3FY24. Despite an expected slight dip in Net Interest Margins (NIMs) due to persistent high cost of funds, we foresee a robust double-digit growth in absolute profitability for the bank in the current quarter. This is attributed to substantial advances disbursements, particularly supported by increased infrastructure spending. Additionally, SBI’s substantial presence in salary accounts ensures stability in CASA and CD ratios. The noteworthy aspect of this quarter’s results lies in the substantial growth of other income, driven by the bank’s strategic focus on leveraging its extensive branch network of 22,405 for cross-selling opportunities.
