The state-owned lender’s net profit grew 67 per cent year-on-year (YoY) to Rs 7,627 crore in the quarter ended September 2021, while its net interest income (NII) climbed 29 per cent on-year to Rs 31,183.9 crore. Both the bottomline and topline of the lender came in above Street’s expectations.
That said, here are the major takeaways from the September quarter earnings of the lender:
Asset quality keeps improving
At the peak of the bad loans crisis of the financial sector, State Bank of India had some of the poorest asset quality numbers. Every quarter saw investors anxious about slippages and new NPA formation. Fast forward to 2021 and the lender is now surprising the Street on how healthy its balance sheet is becoming.
For the reported quarter, SBI reported a 42 basis points sequential decline in gross non-performing assets ratio to 4.9 per cent and a 25 bps decline in net NPA ratio to 1.52 per cent. Further, the provision coverage ratio has now gone up to 87.7 per cent for the lender.
Slippages benign
During the quarter the lender’s slippage ratio fell to 0.66 per cent from 2.47 per cent in the previous quarter. The state-owned bank added merely Rs 6,690 crore of loans to the watchlist in the quarter as against Rs 11,303 crore in the previous quarter.
The shrinking watchlist loans indicate that the lender is facing lower stress on its balance sheet that should free up more capital for growth purposes as the economy gets back up from the pandemic downfall.
Loan growth needs more push
SBI said that its advances in the quarter grew 6.2 per cent year-on-year, which was in-line with its overall guidance for the year. Interestingly, retail loans in the quarter jumped 15.2 per cent whereas home loans grew by 10.7 per cent.
With the balance sheet becoming healthier every quarter, SBI will hope to accelerate its lending business in the coming quarters. An increase in loan growth coupled with improving asset quality would force investors to rerate a lender that still trades at merely 7 times one-year forward earnings and 1.1 times one-year forward price-to-book.
Corporate loans struggling
The state-owned lender reported a near 4 per cent year-on-year decline in its corporate loan book suggesting that companies are still not ready to take on leverage to boost capacity.
However, investors expect that to change in the coming quarters as rapid demand creation in the economy on the back of reopening and higher vaccination rate will nudge companies to boost capacities in the coming year. SBI is considered by many brokerages as one of the primary beneficiaries of the private capex revival in the economy over the next five years.
