Analysts have raised earnings estimates and target prices for State Bank of India, and expect a further rerating on account of its lower slippages, fall in credit costs and attractive valuations, among others.
India’s largest lender saw its net profit decline 7% year-on-year to Rs 5,196 crore in the quarter ended December. Its net interest income, however, rose 4%.
While the bank’s proforma gross NPA stood at 5.44% against 5.88% in the preceding three months, it reported slippages worth Rs 2,073 crore, which were not classified as NPA owing to the Supreme Court’s order.
“Our provision coverage ratio is more than 90% so we do not expect any large provisions to be made against these assets in the future,” said Dinesh Kumar Khara, chairman at SBI. Total provisions rose 43% year-on-year to Rs 10,324 crore.
According to CLSA, full-year slippages of 1.5% of total loans is the lowest the bank would have seen in the last 15 years.
Besides, SBI aims to report double-digit credit growth by the second quarter of the next fiscal, spurred by a revival in corporate credit demand. “We already have sanctioned term loans of about Rs 25,000 crore into the public sector,” Khara told BloombergQuint in an interview.
Shares of State Bank of India gained as much as 10% to an all-time high of Rs 390.6. The stock is up for the fifth straight day and has gained close to 40% during this period. Of the 48 analysts tracking SBI, 45 recommend a ‘buy’, while three suggest a ‘hold’. Based on the 12-month Bloomberg consensus data, the stock has a return potential of 14.7%.