The State Bank of India's
(SBI) earnings are set to revive amid uncertain macros on the back of
steady operating performance at pre-provisioning operating level,
recoveries from large National Company Law Tribunal (NCLT) resolutions
and normalisation in credit cost, according to a broking firm.
The SBI posted Rs 2,312 crore profit in the first quarter of FY20 as provisionings declined 11 per cent year-on-year.
to Motilal Oswal, the risk-reward for the SBI has turned favourable
after suppressed earnings for the past several years due to issues
pertaining to asset quality merger and an adverse rate environment.
now, the macro environment remains challenging with high rating
downgrades in the system resulting in new names being added to the
stressed pool. But given the SBI's size, the new stress is manageable (2
per cent of total loans," said Motilal Oswal.
"The SBI is poised
for an earnings recovery led by steady operating performance at the
pre-provisioning operating level (14 per cent CAGR over FY19-FY21E),
recoveries from large NCLT resolutions and normalisation in credit cost
to 1.9-1.3 per cent over FY20E/FY21E against average of 3 per cent over
FY16-19," it said.
The brokerage said the bank was set for
earnings recovery after a long lull. After reporting sub-optimal
performance in the last few years due to high opex, interest reversals
and provisioning pressures, the SBI is now poised for an earnings
recovery, it said.
The reduction in the corporate tax rate from 30 per cent to 22 per cent should also support earnings, it added.
FY20E will be impacted due to one-time deferred tax asset (DTA)
reversal while full benefits will come in FY21 onwards. "Overall, we
estimate profits to grow to Rs 19,700 crore/Rs 28,800 crore in FY20/21
(against average PAT of Rs 7,000 crore for the past 10 years), thus
driving RoA/RoE to 0.7 per cent/12.7 per cent," it said.