Shares of State Bank of India rose more than 6% to a 12-week high on Wednesday after the country’s largest lender projected a recovery over the next two years following a record quarterly loss.
Top brokerages welcomed SBI’s move to clean up its accounts, recognising large part of its stressed assets that forced the Mumbai-based lender to report a quarterly loss of Rs7,718 crore, the second highest in the country’s banking industry.
The market may take solace that the gross stress has likely peaked, Jefferies said in a note, adding that core profitability should see a cyclical improvement through the second half of 2019.
SBI added Rs33,670 crore of non-performing loans in the March quarter, taking its total to Rs2.23 trillion, or 10.91% of total loans.
Deutsche Bank said it sees better future for SBI and expects core business trends to improve consistently from here on.
SBI is still among the preferred public sector picks because of stronger CASA franchise, better asset quality and capitalisation, CLSA said in a note.
The lender, which accounts for more than a fifth of India’s banking assets, said on Tuesday it aims to grow loans at an annual average of 12% through March 2020, nearly halve its gross non-performing loan ratio, bring down provisioning costs and improve margins.
Credit Suisse and Citi cut their target prices to Rs322 and Rs325 rupees respectively, while Deutsche Bank raised it to Rs330 from Rs320. Jefferies cut its target price to Rs355 from Rs365, while CASA reduced it to Rs340 from Rs360.
Thirty-seven brokerages of the 45 covering the state-run bank rate it “buy” or higher, six “hold” and two “strong sell”. Their median price target is Rs350, according to Thomson Reuters data.
SBI’s shares rose as much as 6.2% to Rs269.7, their highest since 1 March, and were headed for a third straight session of gains. The surge was also SBI’s biggest intraday% gain since early November. The Nifty PSU bank index climbed as much as 5%.