Subscribe to enjoy similar stories. State Bank of India Ltd (SBI) has reported an impressive jump of 51% year-on-year (y-o-y) in its September quarter (Q2FY25) standalone pre-provisioning operating profit (PPoP) to ₹29,295 crore. But a closer look reveals that the results are not as strong.
In fact, the quality of earnings is weak. For perspective: core PPoP has dropped 2.5% to ₹23,764 crore. Core PPoP is operating profit excluding volatile incomes such as treasury, forex gains, recoveries of past bad loans, etc.
Also, it has been calculated before the provisions for employee cost that are mainly for the wage-hike settlement effective from November 2022. Employee provisions drastically fell to ₹2,906 crore from as much as ₹9,221 crore a year ago as the base quarter included the impact of wage-hike provisions. Net interest income (NII) was up 5.4% to ₹41,620 crore in Q2FY25.
This is despite relatively higher growth in domestic advances by 15% against 9% in deposits. Thus, the muted NII growth reflects the pressure on net interest margin (NIM). SBI’s NIM, including domestic and foreign offices, fell 15 basis points (bps) to 3.14%.
While yield on domestic advances was flat at 8.87%, the cost of domestic deposits went up 38 basis points (bps) to 5.03%. Some of the cost pressures on deposits could be offset by achieving a higher yield on investments. The management emphasized that it has taken corrective steps by increasing the marginal cost-based lending rate (MCLR) by about 20 bps on an average across all tenures during Q2FY25, which should have a positive effect on NIM.
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