For the December quarter, State Bank of India (SBI) added Rs6,152 crore to its gross non-performing assets (NPAs), a bit lower than the Rs6,178 crore it added during the September quarter. Fresh slippages into bad loans totalled Rs8,161 crore during the quarter, again slightly lower than the Rs8,270 crore worth of slippages it notched up in the previous quarter. At end-December, gross NPAs were 4.6% of advances compared with 4.19% at the end of September.
That isn’t all. Assets restructured during the quarter were Rs2,188 crore, far above the Rs509 crore restructured during the September quarter, or indeed the Rs564 crore recast during the June quarter. Further, the provision coverage ratio has also been coming down, from 67.25% at the end of June to 62.5% by the end of December. The trend, therefore, is not reassuring, although SBI chairman Pratip Chaudhuri said at the earnings press conference that the worst was behind the bank. The markets were disappointed, but not much; the stock fell 2%.
Was the cushion provided by the better-than-expected results? Net profit went up 15.4% to Rs3,263 crore. But that was boosted by a large write-back in provisions for depreciation in the investment portfolio. Operationally, the yield on advances went up by more than the cost of deposits, leading to higher net interest margins. Gross advances increased by 17.5%, higher than for the banking sector. The upshot: a 26.7% rise in net interest income. That’s impressive, but it’s a deceleration from the September quarter’s growth of 28.4%.
Operating profit growth, too, was much lower than that in the September quarter, but then the bank booked losses on selling part of its equity portfolio, which is a one-off hit. SBI can claim that despite the increase in bad loans and in loan-loss provisions, growth in net profit has been strong.
Will that trend continue? The bank is sticking to its guidance of 16% growth in advances for the full year. Net interest margins are expected to inch up further. The Rs7,900 crore worth of capital to be pumped in by the government will also expand margins. On the other hand, as the SBI chairman pointed out, sectors such as iron and steel have been hit because of the mess on iron ore supplies, suppliers to distribution companies have been hit, sugar companies have been affected because of higher cane prices and there’s a worry about loans to companies exposed to Europe. These problems are not going to go away in a hurry.
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A note by Nomura says a number of cases referred by the banking sector to the corporate debt restructuring cell are still being evaluated, which would mean more restructuring in future. And, at the analyst meet, Chaudhuri said he expects an addition of Rs3,000-4,000 crore to net NPAs in the March quarter. That is an indication of more pain to come, given that this addition was Rs2,683 crore in the December quarter.
So what’s the outlook for SBI? In reply to an analyst’s question on what to expect in fiscal 2013, the bank’s chairman said that would depend on the Union budget, policy decisions on land acquisition and environmental clearances. SBI is, after all, a play on the economy.
Graphic by Yogesh Kumar/Mint
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