SBI Q3 preview: High wage bill to drag net profit lower, muted NII growth seen

Higher operating expenses due to wage revision and pension costs will ring in muted earnings for SBI in the third quarter. SBI had revised its wage growth assumption to 14 per cent from 10 per cent in the September quarter itself. 

After factoring in the wage revision impact in H2FY24, Nomura India said the risk of wage settlements on operating profitability will largely be behind for SBI for the time being. 

That said, the brokerage felt that "this issue only serves to highlight the risks associated with investing in PSU banks, in our view."

Core operating profit could see a sharp 26% YoY drop in the third quarter, according to Nomura, with key monitorables to be comments on unsecured loan growth, capital adequacy and loan book traction. In the September quarter, SBI saw a 8% YoY growth at Rs 14,330 crore and net interest income rose over 12% YoY to Rs 39,500 crore.

SBI share price: The bank's shares have gained 0.9 per cent on the BSE so far this year. It hit a record high of Rs 660 on December 20, 2023.

Here's what analysts expect from SBI's Q3

Nuvama
We expect healthy loan growth of 3% QoQ. NIM shall likely decline marginally by 4bp QoQ. SBI has guided for a shortfall of INR100bn towards the new wage agreement, which shall be spread over two quarters of H2FY24. In Q2FY24, SBI had a one-off wage provision of Rs 3400 crore. Due to a high base, opex for SBI shall grow less sharply than other state banks. Core PPOP (including catch-up wage provisions) shall grow 1% QoQ higher than other state banks due to a high base of opex in Q2FY24. We expect slippage to rise to 0.8% from 0.6% QoQ due to the bank’s Rs 1250 crore funded
exposure to BGR but total credit cost shall remain low at 23bp. The bank will not need to provide for BGR because the account is a paying one but has slipped for technical reasons.

Kotak
We are building net interest margin (NIM) to decline around 7 basis points Q-o-Q/19 bps Y-o-Y, but do see a possibility of stable performance given the structure of loan book and neglibile need for deposits to fund this growth. Operating expenses would be higher due to wage revision related costs (final settlement impact)

Axis Securities
Advances and deposits growth to remain healthy. NII growth to be muted, NIMs could see a compression of 5-7bps. PPOP to de-grow on the back of wage revision-related costs. Credit cost to remain benign, Asset quality to continue improvement trend.

Motilal Oswal
Higher OpEx due to increased investment. Expect earnings to decline due to higher wage provisions. Asset quality to improve further, supported by a low-stressed asset pool. Margin and provisions to be the key monitorables. 

StoxBox 
We expect the banking elephant SBI to come out with a good set of numbers in Q3FY24. Though some marginal decline in NIMs is expected from the PSB due to the ongoing high cost of funds, we anticipate the bank's absolute profitability to witness mid-teen-digit growth in the current quarter on account of high disbursals of advances backed by elevated infra spends. Furthermore, the bank has a large share in the salary account, and the CASA and the CD ratio would not show signs of concern. The highlight of this quarter’s numbers would be seen in the significant growth in its other income backed by the bank’s focus on optimizing its vast branch network of 22,405 for cross-selling opportunities.