InvestorQ : Is it true that SBI has overtaken Reliance Industries in terms of net profits in the latest quarter ended September 2022?
Arya Nanda made post

Is it true that SBI has overtaken Reliance Industries in terms of net profits in the latest quarter ended September 2022?

Anjana Aiyar answered.
2 weeks ago

There has been an interesting shift in this quarter in that State Bank of India has become the most profitable company in India overtaking Reliance Industries in the process. With a net profit of Rs14,752 crore in the Q2FY23 quarter on a consolidated basis, SBI got the better of Reliance Industries in terms of net profits. IN Q2FY23, Reliance had reported net profits of Rs13,656 crore only. However, one can argue that this hit on RIL profits was due to weak gross refining margins (GRMs) and a hit of Rs4,039 crore in the quarter on account of windfall tax imposed on exports.

However, that is par for the course. After all, even SBI takes those occasional hits on account of huge loan loss provisions or even at times on account of provisions for investment diminution when the rates are rising rapidly and spiking the bond yields. There have been others who have also got the better of Reliance in profits. TCS has been a consistent profit beater, before its profits slowed in the last few quarters. In recent quarters, Tata Steel and ONGC had briefly bettered the profits of Reliance Industries. However this is the first time that India’s largest and PSU bank emerged the winner in the net profit sweepstakes.

One reason for the spike was the other income. Even the chairman has admitted that since SBI held Rs2.85 trillion of excess SLR investments over minimum SLR of 19%, it could book a lot of notional gains in its books. To be fair, treasury gains are only part of the story. The core business of SBI showed strong traction in the quarter. Total income for the quarter was up 14.6% yoy at Rs114,782 crore. Having said that, RIL remains the most profitable Indian company if you take the first half into consideration. Of course, in terms of top line, Reliance is more than twice the size of SBI with its latest quarter sales at Rs253,497 crore.

There are some interesting structural improvements in the quarterly numbers of SBI. Net interest income (NII) surged 13% yoy to Rs35,183 crore, while treasury gains resulted in other income of Rs24,400 crore. SBI was a big beneficiary of the rate hikes as it led to quicker rise in yield on advances and investments compared to cost of funds. Consequently, the net interest margin (NIM) for Q2FY23 improved by 5 basis points yoy to 3.55%. In reality, the interest expense grew 16.6% and interest income at 15%, but that negative gap was made up by improved treasury income in the quarter.

There is also a smart top line story hidden in the quarter for SBI. Total advances of SBI surged 20% to Rs30.35 trillion with retail loans nearly 33%. Corporate loans grew at 21.2% while SME credit and agriculture credit by 13.24% and 11% respectively. Asset quality has also shown some improvement in the quarter. Gross NPAs fell 138 basis points to 3.52% while net NPAs fell 72 basis points to 0.80%. Provisions are down 26% yoy. To sum it up, if SBI has overtaken RIL in this quarter on net profits, it is not just about treasury, but there is also a more fundamental story to it.