Kolkata/Mumbai: State Bank of India’s (SBI’s) “war on NPAs” (non-performing assets, or sticky loans) appears to have begun to pay off—asset quality improved and the bank announced on Friday a net profit of Rs 4,050 crore for the quarter ended 31 March, up 24% from Rs 3,263 crore in the preceding quarter.
Year-on-year figures for net profit aren’t comparable because under the leadership of the then newly appointed chairman, Pratip Chaudhuri, the bank had aggressively provided towards pension liabilities and had posted a net profit of Rs 21 crore in the January-March quarter last year.
SBI’s net interest income was up 37.5% to Rs 15,724 crore in the quarter from a year earlier.
Investors cheered what appeared to be a change in fortunes at India’s largest commercial bank, where earnings had been eroded over the past few quarters owing to provisions for bad assets. The bank’s shares jumped Rs 93.90, or 5.08%, to Rs 1,942 apiece on BSE, while the bourse’s benchmark Sensex gained 0.51% to close at 16,152.75 points.
For the full year, SBI posted a net profit of Rs 11,707 crore, or Rs 184.31 per share. This was 41.66% higher than the previous year’s net profit of Rs 8,265 crore.
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In an unusual comment, Chaudhuri said at a press conference that the fair market price of the bank’s shares, based on the valuation of peers worldwide, should be 15 times its earnings per share in fiscal 2012, or “upwards of Rs 2,500” each.
Describing the results for the last quarter of fiscal 2012 as a “blockbuster…, even if put modestly”, Chaudhuri said SBI will seek from global ratings agency Moody’s Investors Service a review of its rating in the light of the latest results and the fact that the Union government had given it Rs 7,900 crore of fresh equity at the end of March. In early October, Moody’s downgraded SBI’s financial strength by one notch to D+ because of its lack of equity capital and deteriorating asset quality.
“We declared a war on NPAs, and we seem to be winning,” Chaudhuri said. Aggressive provisioning towards sticky loans continued through the first three quarters of fiscal 2012, and gross NPAs peaked at Rs 40,098 crore at the end of December, but fell in the three months till March to Rs 39,676 crore, or 4.4% of its assets.
Net NPAs, too, came down from Rs 18,803 crore in December to Rs 15,819 crore, or 1.82% of assets, at the end of fiscal 2012.
“We are no longer the highest NPA bank,” Chaudhuri said.
There were, though, fresh slippages of Rs 26,936 crore during fiscal 2012, including that of Rs 4,383 crore in the quarter till March. But the net increase in sticky loans during the year was contained at Rs 14,350 crore, largely on account of cash recovery from an upgrade of assets declared NPAs earlier to the tune of Rs 11,537 crore. This, according to Chaudhuri, was a substantial improvement over the previous year.
The bank should be able to sustain asset quality at current levels if not improve them, said Saikiran Pulavarthi, an analyst at Espirito Santo Securities.
“The bank has done a good job,” Pulavarthi said. “There is not much of negative news about the bank and the tier I capital of 9.8% will be adequate to help the bank carry on with business comfortably in the coming quarters.”
Most of the net increase in sticky assets during the year—Rs 11,000 crore—was on account of loans made to large companies (Rs 6,905 crore) and to small and medium enterprises (Rs 4,095 crore) going bad.
SBI’s net interest margin (NIM), or the spread between the interest earned on advances and paid on deposits, climbed to 3.85% at the end of March, which, according to Chaudhuri, was ahead of guidance given by the management. This “dream” NIM indicates that the bank was able to “navigate the interest rate changes” in the past year, he said.
The bank’s loan book expanded during the year by 15.8% from Rs 7.7 trillion to Rs 8.93 trillion. For the current year, the bank has projected a 16-18% growth in assets, which Chaudhuri isn’t “too sure can be achieved” in view of the current economic scenario.
SBI is targeting 20% growth in deposits in fiscal 2013 from Rs 10.43 trillion at the end of March, which, according to Chaudhuri, could be “the biggest challenge” because the bank had stopped accepting bulk deposits.
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