SBI reports Q2 net profit growth, eyes on mitigating bond yield impacts

State Bank of India (SBI) announced an 8% year-on-year increase in net profit to Rs 14,330 crore for Q2, as reported by Chairman Dinesh Kumar Khara to Business Today. The growth was largely attributed to advances across retail, SME, agriculture books and international books, as well as from e-loan advances. Non-interest income also saw a boost, driven by loan processing charges and cross-selling.

The bank emphasized the quality of its loan book, citing a gross NPA ratio of 2.55%, a net NPA ratio of 0.70%, and credit costs at 0.22%. SBI’s slippage ratios showed significant improvement from the previous quarter, with recoveries made post-September 30.

Despite potential sector slowdowns, Khara expressed confidence in maintaining the bank’s performance due to underwriting mechanisms that have been put in place. He also highlighted SBI’s deposit growth outpacing overall system growth at 11%, which was driven by current account growth and time deposits during inflationary periods.

In response to concerns raised by the RBI governor about unsecured personal loans, Khara clarified that SBI’s unsecured book largely comprises ETVs existing to business customers and well-rated sectors such as government, paramilitary, state governments, and public sector entities (94%). The remaining 6% is extended to blue chip corporates.

SBI’s CASA ratio experienced a minor decrease of about 275 basis points compared to significant losses by competitors, thanks to efforts in scaling up transaction handling capabilities across the country.

Khara expects interest rates to remain high for longer due to inflation but doesn’t foresee any increase. As for the impact of higher bond yields on treasury income, SBI is closely monitoring its Rs 17 lakh crore treasury book to minimize the Mark to Market (MTM) impact. The bank’s bond dealers are keeping a close eye on global developments. Khara anticipates the inclusion of bonds in the JP Morgan Global Bond Index to help soften yields, which would in turn benefit MTM gains.

InvestingPro Insights

In accordance with data from InvestingPro, SBI has been experiencing a steady acceleration in revenue growth, with a 5.67% increase in the last twelve months as of Q2 2023, and a quarterly surge of 11.6% in Q2 2023. This aligns with the bank’s reported 8% YoY increase in net profit. Furthermore, SBI’s market capitalization stands at 102.47M USD, indicating its substantial presence in the banking industry.

InvestingPro Tips suggest that SBI has consistently increased its earnings per share and has a high shareholder yield. The bank has been able to raise its dividend for three consecutive years, with a yield of 3.87% as of 2023. This suggests that SBI has been rewarding its shareholders despite the challenges faced.

On the flip side, InvestingPro Tips indicate that SBI’s earnings and cash flow may not be robust, with a potential risk of dividend cuts. The bank’s earnings quality is also considered low, with free cash flow trailing net income. However, the bank’s stock is trading at a low earnings multiple, which might present an opportunity for investors seeking value.

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