A good growth in loans, healthy profit margin and better asset quality were key highlights of State Bank of India (SBI)’s September 2015 quarter standalone results.
The bank’s loan book grew 10.3 per cent year-on-year on the back of improved growth in large corporate and international loans. Retail loans, which are considered safer with higher yields, also continued to grow at a healthy pace of 16 per cent, aiding SBI’s overall loan growth. This was the first time in the past five quarters that the bank posted double-digit loan growth. Also, since it was higher than the roughly 9.5 per cent industry growth, it indicates market share gains for SBI. Notably, SBI had indicated that they expect corporate loan growth to pick up on account of higher refinancing of corporate loans. Improving demand from the road sector too aided loan growth.
SBI’s interest income though grew at a slower pace of 9.1 per cent, as the bank cut its base rate by 15 basis points each in April and June 2015. This, along with higher growth in interest expense, restricted net interest income growth at 7.4 per cent to Rs 14,253 crore in the quarter. NII is the difference between interest earned and interest expended.
While a one-time forex gain of Rs 485 crore on account of repatriation of profits from subsidiaries as well as profit on sale of investments and recovery in written off accounts boosted non-interest income that surged 36 per cent to Rs 6,197 crore, tax outgo was up 94 per cent at Rs 2,026 crore. Even as the core and more sustainable revenue stream of fee income grew at a muted 1.4 per cent year-on-year to Rs 3,153 crore, operating profit grew by 20.6 per cent to Rs 10,266 crore, led by loan growth and control over expenses. As a result, net profit grew 25.1 per cent year-on-year to Rs 3,879 crore beating Bloomberg consensus estimate of Rs 3,616 crore.
Another big positive was the management’s confidence that asset quality pressures have bottomed out and could only improve from here on. Fresh slippages, for instance, fell 24 per cent year-on-year and 20 per cent sequentially to Rs 5,875 crore. While SBI sold Rs 400 crore of loans to ARCs, there was also strong follow-up on recoveries. Thus, both gross and net non-performing assets (NPA) ratios improved sequentially as well as year-on-year.
Lower cost of funds saw bank’s domestic net interest margin (NIM) rise three basis sequentially to 3.3 per cent. Going forward though, one will need to see the trend in margins as the bank cuts its base rate further.
Overall, SBI’s results were good and thanks to the earnings beat analysts may revise upwards their full year estimates thereby aiding valuations. Though the stock surged three per cent on Friday to Rs 241.25, valuations remain undemanding at about 0.9 times FY17 adjusted standalone estimated book value