Why SBI Share Price is Falling

Editor's note: Lately, banking stocks have remained in a sweet spot. Improved profitability and return on asset growth has finally started to reflect in their balance sheets.

After a healthy Q3, many were expecting that banking companies will deliver decent growth in Q4 too. And surely, private as well as PSU banks didn't disappoint. Several banks posted record high Q4 profit.

Among the list of banks reporting robust growth was India's largest bank State Bank of India (SBI). On 18 May 2023, SBI posted healthy quarterly results.

Despite record growth, SBI shares have come under pressure due to profit booking, among other reasons.

Continue reading to know more...

Why SBI Share Price is Falling

It was sometime in November 2022 when we wrote about how SBI became India's most profitable company, surpassing Reliance Industries.

Prior to that, we discussed the reasons why SBI share price was rising, crossing the Rs 5 trillion (tn) marketcap barrier, and what lies ahead for the PSU bank.

After seeing tremendous growth in 2022, SBI share price has taken a beating in 2023.

Shares of SBI have dropped nearly 3% in week gone by and more than 11% over the past one month.

Let's look at the reasons behind the fall.

Loan exposure to Adani group

Shares of SBI have come under pressure ever since the beginning of the Adani rout on 24 January 2023.

This decline is because of the bank's exposure to the Adani group, prompting fears of default risks from exposure to the conglomerate.

The Adani group came under attack from US short-seller Hindenburg Research, leading to a sharp fall in shares of group companies and the lenders that have exposure to them. SBI is one of them.

The Reserve Bank of India allows no more than 25% of a bank's available eligible capital base to be exposed to any one group of companies.

This is due to massive corporate defaults in India's public sector banks in the past.

SBI, India's largest public sector bank, has given loans of Rs 210 billion (bn) or US$2.6 bn to Adani group, including US$200 million (m) from its overseas units.

It is about half of what is allowed under RBI rules.

This exposure has been overpriced by the market, triggering an excessive selloff in the banking sector stock.

Clarifying its stake in the group, the Chairman of SBI, Dinesh Kumar Khara, said,

• Nothing is alarming about our Adani exposure, as it is only 0.8-0.9% of our loan book. We do not see any challenges in servicing the loans.

Concerning this allegation, SBI held an extraordinary engagement with the group. Following the meeting, three Adani Group companies, on 12 February 2023, pledged additional shares to SBI.

According to filings, as many as 0.8 million (m) more shares of Adani Ports have been pledged with SBICAP. In the case of Adani Green, it has pledged 0.6 m more shares, and Adani Transmission has pledged 0.1 m more shares.

The road ahead...

For the December 2022 quarter, SBI reported a 57% YoY surge in net profit to Rs 156.7 bn, up from Rs 99.9 bn in the corresponding period of the previous year.

The lender's net interest income rose to Rs 866.2 bn from Rs 696.8 bn in the same quarter of the previous year.

The asset quality also showed significant improvement in the December 2022 quarter.

The gross non-performing asset (NPA) ratio dropped to 3.14%, and the net NPA dropped to 0.7%.

This was due to rising deposit rate hikes being passed on with a lag and an improvement in asset quality.

Update #1: India's largest bank State Bank of India (SBI) reported an 83% growth in standalone net profit at Rs 166.9 bn for the March 2023 quarter. Net profit stood at Rs 91.1 bn in the same quarter last year.

NII for the fourth quarter rose 29% to Rs 403.9 bn, compared with Rs 312 bn in the corresponding quarter of last year. The domestic NIM during the quarter increased 44 basis points YoY to 3.84%.

On the asset quality front, the gross NPAs ratio improved to 2.78% as of March 2023 quarter, down from 3.97% in the March 2022 quarter.

The net NPA ratio was lower at 0.67% in March 2023 quarter. In March 2022, net NPAs stood at 1.08%.

The board has declared a dividend of Rs 11.3 per equity share for the financial year 2023. The date of payment is fixed on 14 June.

SBI, which has been actively funding capex for infrastructure, is set to be one of the biggest beneficiaries as the capex boom plays out.

In the Union Budget for this year, Finance Minister Nirmala Sitharaman announced a capital expenditure target of Rs 10 tn for the financial year 2024, up from Rs 7.5 tn announced in the financial year 2023.

This bodes well for the credit demand in the country over the near term, putting the banking in a sweet spot.

If the government manages to walk the talk, the well-capitalised PSU lenders can continue with their journey on the fast track to growth.

In fact, Tanushree had already predicted that the coming quarters for banking sector stocks will be good.

Read here editorial to know why: Bank Stocks in 2022 Mirror Warren Buffett's 1989 Wells Fargo Investment.

How shares of SBI have performed recently

SBI share price is down 2.8% in the past five days, while over the past one month, the stock has fallen 11.2%.

So far in 2022, shares of the SBI have declined by 12.4%.

SBI touched its 52-week high of Rs 629.6 on 15 December 2022 and its 52-week low of Rs 425 on 8 March 2022.

It is currently trading at a PE (Price to Earnings) multiple of 11.2x, with the industry PE ratio being 1.6x.

About SBI

State Bank of India is an Indian multinational public sector banking and financial services institution.

It provides a wide range of products and services to individuals commercial enterprises large corporate public bodies and institutional customers.

The Bank operates in four business segments namely treasury banking, corporate/ wholesale Banking, retail Banking and other banking Business.

SBI provides a range of banking products through their vast network of branches in India and Overseas including products aimed at NRIs.

It is the 10th most reputed company in the world according to Forbes.

For more details about the company, you can have a look at SBI factsheet and latest quarterly results on our website.

You can also compare SBI with its peers:

SBI vs Canara Bank

SBI vs Bank of Baroda

SBI vs HDFC Bank

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...