- SBI shares rose as much as 6 per cent today
- This takes 2-day gains to 10 per cent for SBI shares
- Analysts see SBI earnings to pick momentum in coming years
SBI or State Bank of India shares edged higher on Thursday, extending gains for the third day after the results were announced. SBI announced its earnings during market hours on Tuesday. SBI shares had gained 3.7 per cent on Tuesday and 3.6 per cent on Wednesday. The surge in SBI share prices comes despite the country's biggest lender posting its biggest ever loss of Rs. 7,718 crore in the January-March quarter, hurt by a surge in provisions for bad loans. But analysts remain positive on SBI shares, saying the "the worst could finally be over" for the bank.
SBI's management also projected a recovery over the next two years, saying the lender is aiming to grow loans at an annual average of 12 per cent through March 2020, nearly halve its gross non-performing loan ratio, bring down provisioning costs and improve margins. "Last year was a year of despair. This year is a year of hope, and next year will be a year of happiness," said chairman Rajnish Kumar after the announcement of results.
Domestic brokerage Edelweiss Securities has a buy rating on SBI shares with target price of Rs 350. This implies a potential 30 per cent upside from current levels.
"Upfront stress recognition, as anticipated, took the sheen off SBI's otherwise operationally steady Q4...we believe SBI will see strong earnings momentum henceforth with major delta coming from reduced credit cost. Furthermore, we believe, focus on creating value in its non-banking subsidiaries can be a more stable and scalable vector for overall value," the brokerage said in a note, titled "SBI loss widens, but the worst could finally be over".
In February, Reserve Bank of India (RBI) announced tighter rules, doing away with half a dozen loan restructuring schemes. This has led banks reporting a surge in bad loans in the March quarter, and several of them reporting losses.
SBI's provision for bad loans jumped to Rs. 24,080 crore in March quarter, from Rs. 17,760 crore in December quarter. Net interest income however rose to Rs 19,974 crore in March quarter, from Rs 18,688 crore in December quarter.
Domestic brokerage Angel Broking attributed two reasons why investors are impressed by SBI's earnings. "Firstly, there is the first indication that the bad loan cycle may be turning around and combined with growth in advances, this could result in improved profitability in the coming quarters. Secondly, the National Company Law Tribunal (NCLT) resolution will result in a write-back of close to Rs.1 lakh crore for Indian banks and SBI is likely to be the biggest beneficiary," the brokerage said.
"The worst is over for SBI," said A.K. Prabhakar, head of research at IDBI Capital in Mumbai, adding that the March quarter results were largely on expected lines.
In early trade today, SBI shares were up 0.60 per cent. (With Agency Inputs)