Mumbai: State Bank of India ( SBI ) on Friday reported a 30% increase in second quarter net profit even as bad loans piled up at the nation’s largest lender by assets.
Net profit rose to Rs.3,658.14 crore in the July-September quarter, compared with Rs.2,810.43 crore in the year-ago period, the state-owned bank said on Friday. SBI exceeded expectations of Rs.3,504.7 crore in net profit based on a Bloomberg survey of analysts.
On a consolidated basis, including the earnings of subsidiaries, the bank’s net profit rose to Rs.4,575 crore from Rs.3,470 crore.
The profit jump failed to enthuse investors. The SBI stock closed the day at Rs.2,156.35 on BSE, down 3.89%. The bourse’s benchmark equity index, the Sensex, fell 0.86%, and the Bankex, the index of banking stocks, dropped 1.2%.
SBI’s gross non-performing assets (NPAs) climbed to 5.15% of total advances in the September quarter, up from 4.99% in the June quarter and 4.19% in the corresponding quarter last year. In percentage term, only Central Bank of India has higher gross NPAs than SBI. After setting aside money to cover bad assets, the bank’s net NPAs stood at 2.44% of total advances against 2.04% a year ago.
Slowing economic growth, which fell to a nine-year low of 5.3% in the March quarter and rose slightly to 5.5% in the three months to June, and high interest rates have made it difficult for many companies and consumers to service their loans.
“The rise in net profit is less of a factor to cheer about compared to the level of jump in bad loans. Even though fresh slippages have declined in the second quarter, in absolute terms the number is worrying,” Vaibhav Agarwal, vice-president of research at Angel Broking Ltd, said. “We see no respite as far the bad loan situation is concerned at least in the next two quarters.”
In absolute terms, gross NPAs at SBI rose to Rs.49,202.46 crore in the September quarter from Rs.47,156.38 crore in the preceding quarter. The bank set aside Rs.1,828.6 crore to cover bad loans, 46% less than what it had done in the year-ago quarter.
Most of the bad loans have been generated in segments such as hotels, power, construction and textiles industries.
Explaining the drop in money set aside to cover bad loans, chairman Pratip Chaudhuri said the bank had front-loaded provisions.
“...In accounts like Kingfisher Airlines, we have already provided the full amount in the first quarter itself instead of staggering it over two quarters. It’s not that we are deferring the provisions; it has been our philosophy that whenever in doubt, provide fully,” Chaudhuri said.
The bank’s exposure to troubled carrier Kingfisher Airlines Ltd is Rs.1,200 crore. It had provided Rs.600 crore in the first quarter.
In the September quarter, Rs.8,495 crore worth of loans turned bad—marginally higher than the Rs.8,270 crore “slippage” in the year-ago quarter, but lower than the Rs.10,844 crore in the June quarter.
SBI wrote off Rs.1,972 crore of bad loans in the latest quarter against Rs.320 crore in the year-ago quarter. Most of the write-offs came from the mid-corporate segment, accounting for Rs.1,143 crore. The bank will be cautious in disbursing loans to this segment, Chaudhuri said. “We have written off only those loans against which we had fully provided for,” he said.
The amount of loans earlier classified as bad and now getting serviced rose to Rs.3,049 crore against Rs.1,036 crore in the year-ago quarter. Cash recovery of loans was Rs.1,428 crore against Rs.736 crore.
The bank restructured Rs.4,694 crore of loans in the quarter. With this, the total outstanding restructured loan book of SBI stood at Rs.40,454 crore. The lender expects to restructure Rs.3,000-4,000 crore of loans every quarter.
With relatively easy liquidity pushing down bond yields, the bank’s treasury contributed to the profit. Bond prices and yields move in opposite directions. The bank’s treasury gain in the September quarter was Rs.260 crore against a depreciation loss of Rs.485 crore a year ago.
Overall, its income rose 21.2% to Rs.32,983.47, but operating profit fell to Rs.7,353.68 crore from Rs.7,474.31 crore in the year-ago quarter.
Year-on-year, SBI’s loan book grew 17.94% to Rs.9.56 trillion. Chaudhuri is hopeful of a pickup in credit demand in the coming quarters in line with a rise in economic activity. The bank is sitting on excess liquidity of Rs.70,000 crore, which is “hurting” due to the carrying cost of money, he said. “We are expecting a credit pickup in the third and fourth quarters, and we are ready with the resources.”
According to Chaudhuri, the bank is focusing less on loans to small and medium enterprises (SMEs), where it has seen most of the NPAs.
Loans to large companies grew 27% in the September quarter, while growth in the mid-corporate and small and SME segments have been 8.01% and 13.25%, respectively.
Retail loans grew by 13.63%, and home and auto loans increased by 12.96% and 28.28%, respectively. According to Chaudhuri, SBI is now the market leader in auto loans with a portfolio of at least Rs.20,000 crore.
The deposit base of the bank in the past year rose to Rs.11.34 trillion from Rs.9.74 trillion—an increase of 16.49%.
The net interest margin, or the spread between interest earned on loans and interest expended on deposits, in domestic operations fell to 3.77% from 3.86% in the June quarter and 3.99% in the year-ago quarter.
SBI’s capital adequacy ratio, a key indicator of a bank’s financial strength expressed as a ratio of capital to risk-weighted assets, increased to 12.63% from 11.4% in the year-ago quarter.
“We expect to close the year with a tier I capital of 10%. In fact, when we add the profit, it will be touching 11% and may even cross 11% irrespective of whether we get (capital) support from the government or not,” said Chaudhuri.