SBI calms the seas with Q3 beat

Even so, amid the stock market turbulence owing to the rout in Adani group shares, SBI’s commentary was crucial. In the Q3 earnings call with analysts, in response to a query about a large conglomerate in the news, presumably Adani group, SBI’s management said as on December end, it has about 0.9% of total loans outstanding exposure. This exposure is slightly ahead of public sector banks (0.7%), said analysts from Jefferies India.

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Investors in Indian banking stocks have been concerned about a contagion risk on account of banks’ exposure to the Adani group. In the earnings call, SBI’s management said its exposure is mostly to operating assets and cash-generating projects. It said it has not extended any finance against pledge of promoter’s equity and wherever shares have been pledged in favour of SBI in certain entities, there is additional collateral security. Importantly, the bank’s management does not see immediate default risk in this case.

“There were concerns that the exposure of SBI, one of the largest banks, to the group could be the highest amongst all banks,” said Nikhil Shah, research analyst at Nirmal Bang Institutional Equities. Even so, SBI’s provisioning is in good state and the clarification from the bank helped ease the concerns, for now, Shah added. Since the release of the Hindenburg Research report on Adani group on 24 January, the SBI stock has fallen by 8.4%. Mona Khetan, VP, Institutional Equity Research, BFSI, Dolat Capital Market said, “The current situation is still evolving and news on the group could result in volatility in SBI’s stock price.” On Friday, ahead of its Q3 results, SBI’s shares closed 3% higher.

Coming to the earnings, the bank’s credit growth stood at about 18.6% and was largely driven by the retail portfolio. Sequentially, loan growth has moderated. SBI is confident of steady credit growth ahead. It has maintained its FY23 credit growth guidance at 14-16%.

As for deposits, they were up 9.5% y-o-y and remained flat sequentially. SBI’s deposit growth may increase going forward with the deposit rate hike being seen across banks, said Bunty Chawla, AVP (BFSI), IDBI Capital Markets & Securities.

But the anticipated deposit rate hikes would mean NIM compression for the sector. SBI’s NIM rose 18 basis points sequentially to 3.5% in Q3. One basis point is 0.01%. It helps that SBI has a good proportion of floating rate loans. This augurs well for the near-term NIM outlook. That said, the bank’s NIM could start normalizing post Q1FY24 as increased cost of funds eventually catch up.

But as things stand, SBI’s earnings outlook seems to be in good stead with some broking firms revising their earnings estimates upwards after Q3 results. For instance, Jefferies has raised its FY23 earnings estimates by around 11% and FY24-25 estimates by 4-5% to factor in the margin beat. “We see 14% compound annual growth rate in loans over FY22-25, which along with margin expansion and lower credit cost should aid return on asset to 0.9%/ return on equity of 17% in FY24,” Jefferies’ analysts said in a report on 3 February.