Higher wage provisions may dent SBI Q4 earnings

Synopsis

The bank's profit is expected to range between ₹16,000 crore and ₹20,000 crore, based on consensus estimates from five brokerages. This is a decline from more than ₹20,000 crore last year.

Mumbai: State Bank of India (SBI), the most-valued government company with a 19% share in outstanding loans, may experience up to a 22% decline in its fourth-quarter earnings, primarily due to one-time wage provisioning costs.

The bank's profit is expected to range between ₹16,000 crore and ₹20,000 crore, based on consensus estimates from five brokerages. This is a decline from more than ₹20,000 crore last year.

For the full fiscal year, the bank's profit is forecast to be between ₹64,700 crore and ₹70,800 crore, according to consensus estimates from three brokerages. In comparison, Reliance Industries reported a consolidated net profit of ₹81,309 crore for FY25, and HDFC Bank, India's largest private lender, posted ₹70,790 crore of profit.

Agencies

A note by Anand Rathi, a brokerage house, pointed out that SBI's March quarter earnings will likely be impacted by a higher-than-expected wage revision and the challenges posed by the macroeconomic environment.

On the positive side, BNP Paribas noted that SBI acts as a proxy for India's broader credit market, encompassing both the positive and negative aspects of the economy. If credit growth strengthens and risk aversion in capital markets subsides, SBI's valuation could see a dramatic re-rating.

However, on the downside, the brokerage highlighted concerns about social intervention costs associated with public sector undertaking (PSU) banks, which could worry investors.

It said SBI's credit guardrails might be perceived as weaker compared with the best-performing private banks, making its valuations particularly vulnerable to market sentiment shifts. A potential capital raise, might occur at below-book valuations, further impacting the bank. As of the December 2024 quarter, SBI reported a strong loan growth of 13.8% year-on-year, driven by steady retail expansion (representing nearly 36% of its portfolio) and solid performance in the corporate and SME sectors. The bank also maintained a healthy credit pipeline of ₹6.3 lakh crore, positioning it for 14-15% growth, outpacing overall credit expansion in the system. SBI's asset quality remained stable, with a gross non-performing asset (NPA) ratio of 2.07% at the end of the December quarter. The bank maintained a strong provision coverage ratio of 75%, which increased to 92% when including write-offs.

Motilal Oswal expects disciplined underwriting and continued recoveries to keep SBI's credit costs within 40-50 bps over fiscal year, supporting its resilient asset quality outlook.

Deposits grew by 9.8% year-on-year as of the December 2024 quarter, with a comfortable domestic credit-deposit (CD) ratio of 68.9%. Net interest margins remained stable at 3.01% during the quarter, bolstered by a 40% proportion of the loan book linked to MCLR, helping the bank weather any rate cuts.

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