Shares of State Bank of India (SBI), the country’s largest lender, fell over 3% in opening deals on Monday after the bank reported lower-than-expected earnings in the June quarter due to a sharp decline in its non-interest income. The PSU bank’s Q1 profit missed estimates due to treasury losses as the mark-to-market (MTM) hit of ₹6,549 crore dragged the bank’s non-interest income down by 80.4% year-on-year (YoY) to ₹2,312 crore during the quarter under review.

Reacting to Q1 numbers, shares of SBI opened 1% lower at ₹525, against Friday’s closing price of ₹530.65 on the BSE. Post opening, the stock declined as much as 3.1% to ₹514, with 3 lakh shares changing hands over the counter as compared to the two-week average volume of 7.89 lakh stocks. The market capitalisation stood at ₹4.6 lakh crore.

SBI shares are currently trading 14% lower than its 52-week high of ₹549.05 touched on February 7, 2022, and a 52-week low of ₹401.30 on August 23, 2021. The banking heavyweight has given more than 18% returns to its shareholders in the past one year, while it has risen nearly 12% in the calendar year 2022. In the last one month, the largecap stock has gained 5.5%, while it dropped 3.5% over a week. The counter has been losing for the last four sessions and dropped around 5% during this period.

SBI on Saturday released its June quarter earnings that showed that its net profit dropped 6.7% YoY to ₹6,068 crore as compared to ₹6,504 crore in Q1 FY22, as losses in the treasury portfolio impacted the bank’s non-interest income.

The net interest income (NII), or the difference between interest earned and expended, grew by 12.87% YoY to ₹31,196 crore compared with ₹27,638 crore in the corresponding quarter last year. The net interest margin (NIM) rose 8 basis points (bps) on a yearly basis to 3.23% from 3.15% in the same period last year.

As per the bank, the mark-to-market (MTM) hit also had an adverse impact on the bank's ROA and ROE, which stand at 0.48% and 10.09% respectively. The MTM refers to the reasonable value of an account that can vary over a period depending on assets and liabilities. “Excluding trading income and MTM, core operating profit increased by 14.39% YoY, from ₹16,873 crore in Q1FY22 to ₹19,302 crore in Q1FY23,” it said.

On the asset quality front, gross non-performing assets ratio dropped by 141 bps YoY to 3.91%, while Net NPA ratio fell 77 bps YoY to 1%. Slippages ratio stood at 1.38%, improved by 109 basis points over 2.47% in the year-ago quarter, while provision coverage ratio (PCR) improved by 719 bps YoY at 75.05%.

During the quarter under review, SBI’s balance sheet size crossed ₹50 lakh crore, while credit growth stood at 14.93% on yearly basis.

Post Q1 results, ICICI Direct Research retained its “Buy” call on SBI and revised the target price to ₹615 from ₹605 projected earlier. The agency believes that the credit growth guidance of around 14-15% on the back of a healthy demand pipeline to aid business growth and overall performance. Besides, gradual improvement in margin, steady operational efficiency coupled with adequate provision buffer to boost earnings momentum.

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