New Delhi, June 08, 2020.

The country’s largest lender State Bank of India (SBI) has seen a 0.8 percent year-on-year decline in net interest income due to interest reversals on agri slippages and slower loan growth. The profit growth at more than four-fold increase to Rs 3,580.81 crore was supported by stake sale in SBI Card (Rs 2,731.34 crore) but was lower than analysts estimates.

Higher loan loss provisions, employee costs and slower NIM growth dented the profit.

Asset quality performance of the bank improved sequentially with 42 basis points decline in gross non-performing assets and 79 bps fall in net NPAs. Fresh slippages plunged 51 percent QoQ to Rs 8,105 crore in Q4FY20 – at four-quarter low, they were supported by the RBI dispensation.

Slippages ratio for Q4FY20 has declined to 1.41 percent from 2.94 percent as of Q3FY20 while the provision coverage ratio (PCR) has improved to 83.62 percent in March quarter, up 189 bps sequentially.

Prabhudas Lilladher believes slippages should be manageable with similar rate in FY21/FY22 which were estimating pre-COVID to trend down significantly. Bank disclosed 22 percent of its customers are under moratorium who have paid less than two installments and did not disclose value wise, hence is not comparable with peer banks.

“Colour on moratorium seems little comforting as customers continue to pay installments (7 percent of customer paid atleast one installment and only 9 percent customers did not pay any installment), while 20 percent of working capital loans have chosen to differ interest payment which would keep slippage manageable, it feels.

Hence, brokerages retained bullish stance on the stock expecting 20-49 percent potential upside from current levels. The share price reacted positively to the earnings, rising 7.9 percent on June 5 to Rs 187.80 following asset quality performance, though earnings missed analysts expectations.