An unexpected disappointment from the banking bellwether State Bank of India is unlikely to go down well with the street. In addition to a weak operating performance that was largely attributed to merger pangs; asset quality was a shocker, especially since the slippages were driven by retail. While the franchise is strong, well-capitalised and more tech-savvy than many of its public sector peers and have decent value in subsidiaries; markets will be watchful unless there is meaningful reversal of the “one-offs” that management confidently guided to.

Losing market share

The reported credit growth was a dismal 1.5%. What is interesting is that in the past one year, SBI’s share in incremental credit stood at 6%, which is almost one-third of HDFC Bank and comparable to mid-sized private sector entities. We hope, the 50 basis points reduction in savings banks rate aids the bank in grabbing market share that it is losing fast to competition in the MCLR (marginal cost based lending rate) regime.

The management mentioned that since top-rated corporates are moving to the market, the bank has increased exposure to Corporate Bonds and Commercial Paper. The bank has guided to 6-8% credit growth for full year, which points to recovery in the second half.

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