SBI Q1 Results Review: Monitoring High Credit Costs, Retail Delinquencies Key, Say Analysts

Analysts have recommended monitoring the State Bank of India's high credit costs going forward. India's biggest state-run lender's credit costs increased to 0.48% due to higher seasonal slippages in agriculture and higher slippages in unsecured loans due to delayed salary credit in some states and higher ageing provisions, said Systematix in a note.

Bernstein, too, said, "With credit costs susceptible to further increases, the 1% return-on-assets is clearly at risk."

The public sector lender reported a 0.89% year-on-year rise in net profit to Rs 17,035 crore in the first quarter of fiscal 2025. Its net interest income, or core income, rose 5.7% year-on-year to Rs 41,125 crore.

Other income for the quarter fell 7.4% year-on-year to Rs 11,161.8 crore.

The lender's asset quality remained stable, with the gross non-performing asset ratio improving three basis points per quarter to 2.21%. The net NPA ratio, on the other hand, remained flat at 0.57% sequentially.

Fresh slippages in Q1 rose 3.1% year-on-year to Rs 7,903 crore. However, sequentially, they increased by 104%.

Here is what analysts said about SBI's Q1 results:

• Net interest Margin declined 8 basis points quarter-on-quarter to 3.22% as the yield on advances dropped 20 basis points while the cost of deposits stayed flat.

• A rise in investment yield, perhaps as a result of mandated reclassification requirements since the start of fiscal 2025, offset the drop in net-interest margin.

• Bank maintained its return-on-assets above the 1% mark even as earnings-per-share growth was a meagre 1% year-on-year

• Maintaining return-on-assets above 1% in the quarters ahead will be challenging.

• Maintain 'market perform' with a target price of Rs 810 apiece.

• Profit after tax beat consensus by 3% as lower net interest margin was offset by lower opex and lower provisions.

• While net interest margin declined sequentially, it was largely due to the absence of interest on tax refund which is non-core

• Addition to Common Equity Tier 1 capital, or CET-1, from new investment norms at 11 basis point was lower than the guided 50 basis points due to change in investment mix and mark down of Rs 13 billion on some available-for-sales, or AFS, securities

• Retail loan growth slowed to 13.6% year-on-year, with it now being the slowest growing segment due to higher risk weights on unsecured loans

• Retail non-performing loans and retail slippages grew 30% and 25% year-on-year, respectively, partly due to late credit of salaries by some state governments, which led to higher slippage in unsecured Xpress loans

• Maintain 'buy' with a target price of Rs 1,026 apiece.

• Compared to a few large private sector banks, or PVBs, relatively healthier credit growth at 16% year-on-year was primarily due to sustained strong momentum in the RAM book.

• Substantial recovery or write-offs led to a decline in the GNPA ratio by 3 basis points to 2.2%.

• Improvements in overall asset quality are expected to continue and this may lead to a lower loan-loss provision of 0.5%.

• Expect the bank to deliver a return on assets of 1.1% and a return on equity of 17–19% in near-term.

• Maintain 'buy' with a target price of Rs 1,025 apiece.

• Retail NPA ratio increased across x-press credit and other Profit & Loss, or PL, books, partly driven by seasonality

• Credit cost guidance maintained at 50 basis point, with scope of some more improvement in cost-income ratio

• Expect overall credit costs of 60 basis point over fiscal 2025-2026

• Estimate NIM at 3.3% for fiscal 2025-2026 due to scope for 200-300 bps rise in cash-deposit ratio and peaking of cost of funds

• Expect loan growth of 14% in fiscal 2025 and 12% for fiscal 2026

• Higher than anticipated stress from MSME and agri portfolios, weaker than anticipated growth, and NIM are risks to be watched out for

• Maintain 'accumulate' with a target price of Rs 890 apiece

• Deposit growth was flat sequentially due to domestic Current Account Saving Account, or CASA, decline of 1.4% sequentially muted term deposit growth

• Bank guided for loan growth of about 15% funded by deposit growth of approx. 8%, unwinding of excess statutory liquidity ratio, or SLR, infra bonds and credit-deposits for fiscal 2025

• Other income declined 36% sequentially, with the previous quarter benefitting from higher dividends from subsidiaries, seasonally higher fee income and seasonally higher two recovery

• Maintain 'buy' with a target price of Rs 1,010 apiece.

• The decline in cost-to-income ratio to 49.4% was due to moderation in opex growth and was a key positive.

• The bank scaled down deficit growth to protect the cost of funds and margins.

• Expect profit after tax to clock a compound annual growth rate of 17.2% over fiscal 2024–2026. This will be supported by a 14.3% CAGR in loan growth, stable margins, improved cost ratios, and a credit cost of 50 basis points.

• Expect a return on-assets of 1.1% and a return on equity of 17.8% due to this in fiscal 2026.

• Maintain 'buy' with a target price of Rs 1,060 apiece.