State Bank of India (SBI) shares fell 8.6% on Monday, spooked by the much higher provisions for non-performing assets (NPAs). Provisions for NPAs amounted to Rs911 crore in the September quarter, compared with a write-back of Rs247.4 crore in the June quarter. While gross NPAs as a percentage of gross advances fell to 2.51% from 2.54% at the end of June, in absolute terms gross NPAs rose by Rs1,144 crore during the quarter. Of the increase, Rs206 crore was due to the takeover of NPAs from State Bank of Saurashtra and another Rs148 crore was on account of the bank’s international exposure, including loans to Lehman Brothers Holdings Inc. At the analysts’ conference, SBI chairman O.P. Bhatt said NPAs may go up in the future, with stress being seen in loans to small-scale industries and in foreign assets. The silver lining is that SBI’s provision cover at 47.28%, although low, is up from 44.79% at June-end.
Fears about bad loans, however, didn’t prevent SBI from increasing its outstanding advances by 37% year-on-year. During the September quarter, outstanding advances?rose 11.4%. The?high?rate?of growth in advances has led to a rise in SBI’s credit-deposit ratio, with the incremental credit-deposit ratio during the last quarter being particularly high. Bhatt said that he would try to bring down this ratio. True, SBI is increasing its market share, but the question is: Won’t such a high rate of advances growth in the current environment lead to more bad loans? This is the question the market is worried about, notwithstanding SBI’s excellent results for the September quarter.
Operating profit growth has been 55%, the result not only of high credit growth, but also a hike in the bank’s prime lending rate. Net interest margin was a high 3.16% and net interest income saw a growth of 45%. But current and savings accounts accounted for 39.7% of deposits at end-September, compared with 41.87% at June-end.
The rapid growth has also resulted in the bank’s capital-adequacy ratio falling from 12.99% at end-June in terms of the Basel I requirements to 12.14% by the end of September. In terms of the Basel II requirements, the ratio works out to 11.5%. The SBI chairman, however, said that once all loans have been rated by the rating agencies, the capital adequacy ratio would increase.
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