SBI pips HDFC Bank to regain most profitable lender tag after 7 years

Exactly after seven years, the State Bank of India (SBI) has toppled private lender HDFC Bank in profitability as the state-owned lender reported its highest ever quarterly net profit of Rs 13,265 crore for the September quarter.

HDFC Bank reported a net profit of Rs 10,606 crore for the quarter. What’s more, the lender’s standalone net profit has even surpassed that of Reliance Industries’ for that matter.

While a near 20 percent year-on-year loan growth — the highest in the last 19 quarters — boosted SBI’s bottom-line in the second quarter, it was the weakness in refinery margins and export tax on refined fuels that impacted RIL’s earnings. However, for the first half of this fiscal, RIL continues to be the most profitable firm with a standalone net profit of Rs 22,011 crore against SBI’s earnings of Rs 19,333 crore.

Not surprisingly, the stellar profit also augmented SBI’s target price as brokerages increased earnings estimates between 10 percent to 18 percent for this fiscal. Shares of SBI have gained 33.4 percent in 2022, so far and analysts expect an upside of another 17 percent over the next 12 months, according to Bloomberg consensus estimates.

Shares of SBI had returned 67.5 percent last year, adding Rs 3 lakh crore to its market capitalisation between January 2021 and now. As of Monday’s close, the market capitalisation of SBI stood at Rs 5.5 lakh crore.

Analysts are of the view that SBI, the biggest Indian lender by assets, will need to focus on converting savings into term deposits as banks in the country are under pressure to expand their deposit base while demand for loans rise.

“SBI’s CASA growth continues to be weak at 5 percent year-on-year, partly reflecting conversion of savings into term deposits, which was up 6 percent y-o-y and as a result, CASA ratio has declined by 160 bps from last fiscal to 45 percfent of deposits,” wrote Jefferies in an investor note. The brokerage added that SBI’s domestic loan-to-deposit ratio is at 63 percent and offers headroom to continue growing loans without having to significantly raise deposit rates for liquidity mobilisation.

Shares of SBI rose 3.4 percent on Monday to hit a record high of Rs 614.15 on the NSE.