SBI Q2FY19 Preview: Will the largest lender turn losses into profit?

The share price of State Bank of India (SBI) was trading positive note on Monday, as the bank was set to announce in its September 2018 quarter result. Investors looked very optimistic on SBI, as the bank was trading at Rs 291.75 above Rs 6.30 or 2.21% on Sensex at around 1227 hours. The bank has also touched an intraday high of Rs 292 per piece which means it gained by nearly 3% on the index. This time investors are eyeing for some profit in SBI’s financial book. The bank post its merger with associates has been witnessing rise in stressed assets, higher provisions which has led to weak earnings. However, SBI has continued to maintain its mark when it comes to loan growth.

In Q1FY19, SBI posted a net loss of Rs 4,876 crore which was compared to net profit of Rs 2,006 crore in Q1FY18. On the other hand, net interest income (NII) was at Rs 21,798 crore up by 23.81% versus Rs 17,606 crore in Q1FY18. Provisions rose by 70.73% to Rs 16,849 crore in Q1FY19 versus Rs 9,869 crore in Q1FY19.

As on June 2018, SBI had gross NPA oF Rs 2,12,840 crore which was slight down compared to Rs 2,23,427 crore in Q4FY18, however, was higher as against Rs 1,99,141 crore in Q1FY18. In percentage terms, gross NPA was at 10.69% in Q1FY19 versus 10.91% in Q4FY18 and 10.35% in Q1FY18.

So, will SBI record profit in Q2FY19 that is the real question. Will the bank bring down its gross NPA, or is there a surprise awaits.

In Phillip Capital’s view, SBI will see low single‐digit loan growth book along with lower NIM to drive NII. It’s margin to remain under pressure as 1QFY19 NIM was higher because of strong recovery

Phillip Capital added, “Slippage will mainly come from the watch list.  Asset quality to remain elevated in absence of any major recovery. Moderate rise in G‐Sec yield during the quarter to result in limited MTM impact on investment book.”

On the other hand, analysts at Edelweiss Securities said, “We expect loan growth to improve (but still below system average), with support from retail portfolio and opportunistic corporate growth. Incremental stress is likely to be contained & slippages anticipated to be lower than Q1. No major asset resolution under NCLT-1 though mid-sized & small sized cases resolution has picked up momentum.”

According to Emkay, after a loss reported by SBI in Q1FY19, we expect profit of Rs 9.2 billion in Q2FY19. We expect higher MTM provisions on investments due to rising interest rates. We continue to believe that the slippages for FY19E are likely to be on the higher side. We remain concerned about the existing pool of NPAs.

Talking about loan growth of SBI, Emkay said, “Retail loan growth momentum should continue to remain strong, while international book should continue to decline and shrink.”

According to Axis Capital, expect loan growth to be 9-10% YoY with largely stable margin. Fresh slippages to moderate and largely to arise out of watchlist. With no major recoveries during the quarter, GNPAs to remain high with elevated credit cost.

Hence, as per Emkay, SBI is seen to post net profit of Rs 921 crore in Q2FY19, whereas NII is predicted at Rs 23,008.3 crore along with NIM of 3.1%.

Well how does SBI perform in Q2FY19 will be keenly watched.