Oversold: SBI shares have fallen 9 per cent over the last month against a 2.5 per cent drop in the Bank Nifty. Technically, SBI fell from a peak of 75-80 on January 10 to 30-35 on February 12 on the 14-day Relative Strength Index indicating bearishness.
Economic slowdown: SBI is India's biggest lender accounting for a quarter of all loans and deposits in the country. This scale hurts SBI when the economy does not do well. In an interview to NDTV Profit, SBI chairman Pratip Chaudhuri said economic impediments have hurt SBI's performance. SBI's bad loan levels are above the industry average of around 3 per cent.
Asset quality overhang: SBI has exposure to many corporates that are in the midst of a crisis in the tough economic environment. Suzlon Energy, Kingfisher Airlines and Air India have all weighed on SBI's balance sheet. SBI's gross bad loans, before recoveries and write-offs, stood at 5.3 per cent of assets in Q3, an increase of nearly a third from a year earlier. Mr Chaudhuri said fourth quarter (ending March) slippages would be lower than the December quarter.
Operational growth may return: Net interest margin, a key gauge of profitability, was in line with estimates at 3.7 per cent in Q3. But growth may pick up in Q4 leading to upside in the NIM. SBI's base rate, at 9.75 per cent, is the most competitive in the country, and as the economy rebounds, it might reap benefits. CLSA expects earnings to grow at 15 per cent Compounded Annual Growth rate.
Brokerages optimistic: CLSA maintained its "buy" call with a target of Rs 2,920 saying NIMs may have bottomed out. Citi retained its "buy" call with a target of Rs 2,625 saying growth may pick up.
(With inputs from Reuters)