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Results corner: Why SBI Q4 earnings has irked stock investors 

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Stock Fundamentals

From 8.7 per cent of yield on loans in Q4 FY20, SBI’s earning from its assets has been steadily shrinking

State Bank of India stock fell 3.76 per cent on Friday, reacting to its March quarter (Q4) numbers. While the favourable factor in Q4 was the stark improvement in asset quality, tapering yield on loans and a consequent miss in earnings expectations didn’t go well with investors.

SBI’s gross NPA ratio stood at 4 per cent in Q4, down 100 basis points (bps) year-on-year while net NPA at a little over a per cent is the best SBI has seen since FY14. Even as the slippages ratio rose from 0.4 per cent in Q3 to 0.6 per cent in Q4, on a year-on-year basis, there is a significant reduction. Q4 slippages ratio hovers around the all-time best for SBI and in absolute terms at a mere ₹3,600 crore of slippages, it denotes an improvement by leaps and bounds for India’s largest lender.

But here’s the concerning aspect.

From 8.7 per cent of yield on loans in Q4 FY20, SBI’s earning from its assets has been steadily shrinking. It fell to 8 per cent a year later and in Q4 FY22 it stood at 7.6 per cent. SBI has kept away from the pricing war to garner growth and yet its yields are reducing. It is suggestive of the pricing pressure prevalent in the sector. Consequently, net interest margin or NIM, an indicator of profitability, has been sustained at 3.2 per cent, taking advantage of the low-cost regime.

With Q4 being a letdown on the yields front, sparking concern is the issue of how SBI can handle the increasing interest rate. In fact, this concern holds true for the entire banking sector.

Published on May 14, 2022

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