SBI Q1 profit falls 32% on higher provisions

SBI’s net profit for the quarter was Rs2,520.96 crore as compared to Rs3,692.43 crore a year ago

Provisions and contingencies jumped 85.34% to Rs7,413.10 crore as the bank had to set aside more money against bad loans.  Photo: Pradeep Gaur/Mint
Provisions and contingencies jumped 85.34% to Rs7,413.10 crore as the bank had to set aside more money against bad loans. Photo: Pradeep Gaur/Mint

Mumbai: State Bank of India (SBI) reported a Rs.1 trillion gross NPA (non-performing asset) number for the quarter ended 30 June, but India’s largest lender has been able to largely cut down fresh additions to bad loans while other state-owned banks continued to report a deterioration in asset quality.

SBI said its net profit for the June quarter fell 31.73% from a year ago on account of higher provisions even as the rise in fresh NPAs was down significantly from the January-March period. Net profit for the quarter dropped to Rs.2,520.96 crore as compared with Rs.3,692.43 crore a year ago.

A poll of 23 Bloomberg analysts had forecast that the lender would post a net profit of Rs.2,503.10 crore.

Provisions and contingencies jumped 85.34% year-on-year to Rs.7,413.10 crore as the bank had to set aside more money against bad loans.

Gross NPAs rose 3.43% to Rs.1.01 trillion at the end of June, from Rs.98,172.80 crore in March. On a year-on-year basis, gross NPAs jumped 80% from Rs.56,420.77 crore.

As a percentage of total loans, gross NPAs were at 6.94% at the end of the June quarter as compared with 6.5% in the previous quarter and 4.29% in the year-ago quarter.

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At a meeting with media persons after announcing the bank’s fiscal first quarter results, SBI chairperson Arundhati Bhattacharya attempted to assuage concerns around bad loans by stating that the resolution of bad loans was slowly picking up. However, she did caution that the pace wasn’t as fast as required, adding that a bulk of the recovery would be seen in the latter part of the year.

Bhattacharya also pointed out that India is seeing green shoots in many sectors including passenger vehicles, roads, dedicated freight corridors, transmission and fertilizers.

“Yes, green shoots are there, but they are patchy. I would still term them as fragile,” she added.

The six other state-owned lenders that reported their quarterly results on Friday, though, did not echo any of Bhattacharya’s enthusiasm.

Five out of the six—Bank of India, Bank of Maharashtra, Dena Bank, Central Bank of India and Allahabad Bank—reported a net loss for the April-June period.

Bank of India reported the biggest loss among the five, at Rs.741 crore during the quarter compared with a profit of Rs.129.72 crore a year ago.

Oriental Bank of Commerce reported a 61% year-on-year fall in its first quarter net profit, which was reported at Rs.101 crore.

All six reported gross NPA ratios in the 11%+ range, pointing to higher provisions.

In December, the Reserve Bank of India (RBI) conducted an asset quality review across the banking sector, following which banks were asked to recognize visibly stressed assets as NPAs.

RBI also asked banks to make adequate provisions for stressed assets. This has hit the profitability of some banks.

SBI’s net NPAs were at 4.05% in the June quarter compared with 3.81% in the previous quarter and 2.24% in the same quarter last year.

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The lender’s watch list, or the list of stressed accounts which have a higher tendency of turning into NPAs, remained at Rs.31,000 crore, said Bhattacharya.

“We would like to keep the slippages from the watch list at the minimum. If you see this quarter, about Rs.3,000 crore worth of these loans would have slipped. As we resolve the other issues, it would be important to see that the watch list issue is resolved as well,” said B. Shriram, managing director and group executive for large corporate loans at SBI.

Despite the fact that most of the accounts in the watch list belong to the bank’s large corporate loan portfolio, SBI’s outstanding loans to the segment rose over 20% year-on-year to Rs.3.08 trillion as on 30 June.

“If you see, that growth is only on a year-on-year basis. But on a quarter-on-quarter basis we have actually reduced our corporate loan book by about Rs.50,000 crore. It has reduced in a number of sectors. For example, the NBFC (non-banking financial company) sector is where it degrows every year around this quarter,” said Shriram.

Telecom and food credit are the two other sectors where the bank has seen a reduction in outstanding loans, he added.

“What happens is that at the end of the quarter, many corporates come back to bank loans as the markets become too expensive,” said Bhattacharya.

About half of the reduction in outstanding loans also happened because the account moved from the bank’s loan book to its investment book. Companies typically move to the bond market during favourable times to ensure they get cheaper rates.

“We would not generalize a recovery trend for all public sector banks. It would be limited to some larger banks such as SBI which have been recognizing bad loans sooner,” said Siddharth Purohit, senior banking analyst at Angel Broking Pvt. Ltd.

According to Purohit, most of the banks apart from India’s largest lender that would report a profit would be doing so owing to higher trading gains, which may turn out to be a one-time game.

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