SBI delivers strong results. Is it still lagging competition?

The stock was down 1.9 % in Friday trade to ₹843. However, it withstood the broad selling pressure witnessed on Dalal Street over the past one month—it has gained nearly 7% vis-à-vis a 3% fall in the Sensex.

The September quarter performance

The impact of higher deposit rates is visible in SBI’s results—its net interest margin (NIM) for domestic operations was 3.27% in the second quarter of 2024-25 vis-à-vis 3.43% a year ago. 

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ICICI Bank, a smaller private-sector rival, reported an NIM of 4.27% in the quarter vis-à-vis 4.53% a year ago.

However, HDFC Bank, the largest private-sector bank, reported an NIM of 3.65 % on interest-earning assets in the second quarter vis-à-vis 3.6% in the year-ago period.

To SBI’s credit, its total bank advances grew 14.9 % on-year to ₹39.2 trillion in the quarter, led by stronger offtake for credit from agriculture, SMEs and corporates. The above growth has come despite broad sluggish demand in segments like automobiles, consumer durables, etc.

The largest bank had grown its total bank advances by 15.39% in the June quarter.

Meanwhile, ICICI Bank’s total advances grew by 15% on-year in the quarter, while HDFC Bank’s gross advances grew a lacklustre 7% on a year-on-year basis.

SBI had fairly good asset quality. Its net non-performing assets (NPAs) stood at 0.53% in the quarter vis-à-vis 0.64% a year ago.

In the case of ICICI Bank, the net NPA ratio was 0.42%, broadly similar to the levels reported a year ago. For HDFC Bank, net NPAs were 0.41% of net advances vis-à-vis 0.35% a year ago.

Meanwhile, SBI benefited from its other income jumping 41.5% to ₹15,270.5 crore and that helped its standalone net profit rise 27.9% on-year to ₹ ₹18,331.4 crore.

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Rival HDFC Bank’s standalone net profit grew just 5.3% on-year to ₹16,820 crore in the September quarter. ICICI Bank’s standalone net profit grew 14.4% on-yer to ₹11,745.9 crore in the quarter under review.

Lagging rivals

No doubt, SBI‘s net profit in the September quarter grew faster than those of HDFC Bank and ICICI Bank, but it still has to catch up with its peers in terms of NIM.

Also, SBI needs to bring its retail lending book to levels similar to peers like ICICI Bank to improve its earnings profile.

SBI had 35.6% of its total bank advances of ₹39.2 trillion at the end of the September quarter for retail loans. For ICICI Bank, it was 53% of its loan portfolio of ₹13.6 trillion.

As a result, the return on assets for SBI was 1.13% in the first half of 2024-25 vis-à-vis 2.36% for ICICI Bank.

Growth outlook

Global central banks like the Federal Reserve and Bank of England have cut interest rates over the past few days.

However, the Reserve Bank of India, in its recent policy meeting, has broadly hinted that rate cuts in the domestic economy are still some time away, given food and retail inflation are still running at higher-than-expected levels.

SBI had 29.5% of its total loan book dedicated to corporates at the end of the quarter, and a pick-up in private capital expenditure will translate to stronger demand for its credit facilities.

The Indian economy is expected to grow between 6.5% and 7% during 2024-25 on expectations of consumer demand revival in the second half and the festive season. Several sectors, such as auto, steel, and cement, are currently expanding capacity, which should provide SBI with growth momentum.

Also Read: SBI won’t get into a rate war amid fight for deposits, says new chief

SBI had over 22,000 branches at the end of the first half of 2024-25, and they would play a key role in the “deposit war" currently underway in the broader Indian banking system and help it access low-cost CASA funds and grow its loan portfolio.

The bank also has permission from its board to raise ₹20,000 crore via long-term bonds during the current fiscal.

Valuations

At ₹842, SBI trades at a P/E of 10 times estimated standalone 2024-25 earnings.

Meanwhile, ICICI Bank trades at a P/E of 18.5 times estimated standalone 2024-25 earnings, while HDFC Bank trades at 19.5 times on a standalone basis.

For more such analysis, read Profit Pulse.

Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.

Amriteshwar Mathur is a financial journalist with over 20 years of experience.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.