SBI spurts for second day post robust Q4 results

NEW DELHI: State Bank of India ( SBI) surged for the second day on Monday, extending its previous day’s rally of over 5 percent on Friday after the country's biggest lender reported a nearly 20 times jump in quarterly profits on the back of a sharp drop in provisions for bad loans and strong credit demand.

CLSA and Bank of America-Merrill Lynch upgrade the stock to "buy" citing asset quality improvements and recent under-performance in shares.

Macquarie also raised its ratings, but just to "neutral", saying SBI is already the most expensive Indian public sector bank, trading at a 20 percent premium to its peers, while citing concerns over the pace of restructuring.

Higher interest income and lower provisioning for bad loans helped SBI report earnings that may wipe out worries about its financial health after the state-run bank almost plunged into losses in the same quarter last year.

“The bank reported a 45.2 percent YoY growth in its NII to Rs 11,704 crore, in line with our expectations, aided by an NIM expansion of 82 bp YoY to 3.89 percent,” Angel Broking said in a report.

Non-interest income increased by 33 percent on a YoY basis to Rs 5,264 crore, mainly helped by higher fee income and increased dividend income.

SBI was among the worst performers in the banking industry in the year 2011, losing more than a quarter of its value from 52-week highs, as mounting loan defaults and restructuring shattered investor confidence. The SBI stock slipped nearly 30 percent in 2011.

In 2012, the stock has surged over 23 percent led by consumer-friendly policies such as removal of prepayment penalties and reduction in interest rates. It also facilitated many customers to shift to lower rates for a marginal fee, keeping sentiment upbeat.

“The bank’s asset quality improved on a sequential basis, with gross and net NPA ratio declining by 17 bp and 40 bp QoQ, respectively, and PCR improving by 558 bp QoQ to 68.1 percent,” the Angel Broking report added.

The brokerage firm maintains its ‘buy’ recommendation on the stock with a target price of Rs 2,511 for a 12-month period.

The company's shares closed 3.3% higher at Rs 2007.40. It has hit an intraday high of Rs 2027.00 and a low of Rs 1963.