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Shares of State Bank of India (SBI) were under pressure on Monday, falling 2.75% on the National Stock Exchange, in morning trade. The June quarter earnings (Q1FY23) performance of the country’s largest public sector lender was a mixed bag. Loan growth at 14.93% year-on-year was at a multi-quarter high in Q1, even so, SBI missed the Street’s earnings expectation and was hit by a one-time mark-to-market loss and weak net interest margin (NIM).

While the miss on earnings was a sentiment dampener, all is not lost for its investors.

The bank’s management is confident of the momentum in loan growth sustaining in FY23 and is targeting a loan growth of around 12% year-on-year. In a post earnings call, the SBI management said that utilisation of corporate credit limits is improving and traction in retail SMEs should support incremental loan growth. 

Further, analysts have highlighted that SBI would benefit from the re-pricing of its floating rate loan portfolio.

“Given the strong loan growth seen in 1QFY23, we have raised our growth estimates for FY23/24E," said analysts at Nirmal Bang Institutional Equities. The report added that given the cumulative repo rate hike of 140 basis points (bps) so far and SBI’s 74% asset-linkage to floating rates, the bank looks well placed to gain on the margin front in the current upward rate cycle. One basis point is 0.01%.

NIM declined by 13bps sequentially to 3.02%, but the management expects the metric to improve going ahead.

Sharing the optimism, analysts at Kotak Institutional Equities said the bank has navigated the first quarter, which usually has the highest slippages, exceptionally well. “Loan growth has recovered, costs are under control and provisions are likely to head even lower, positioning the bank well to deliver >15% RoE in the medium term," the brokerage house said in a report on 7 August. RoE is short for return on equity.

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