Mumbai: The country’s largest lender, State Bank of India (SBI), posted its weakest pace of profit growth in three years in the December quarter as it struggled to deploy excess liquidity in profitable ways.
Report card: State Bank of India chairman O.P. Bhatt. Abhijit Bhatlekar / Mint
Its net profit for the quarter was Rs2,479 crore against Rs2,478 crore a year ago. On an average, the bank had Rs75,000 crore worth of excess liquidity during the quarter and earned 4.77% deploying this money. In the year-ago quarter, the excess liquidity was to the tune of Rs52,985 crore and it earned a yield of 7.53%.
The group’s net profit fell to Rs3,305 crore in the December quarter against Rs3,608 crore a year ago.
Analysts termed the earnings average, in line with their expectations. “The result was in line with expectations and there were no significant negatives,” said Jyothi Kumar Varma of KR Choksey Securities.
“The liquidity remains a concern and it will increase as SBI’s absolute deposit growth in the next three quarters will be about Rs36,000 crore compared with advances growth of Rs25,000-30,000 crore, adding ideal cash. The results may remain muted on this account alone for the next six months,” Varma added.
Another analyst with a local brokerage said the bank managed to keep the quality of its assets fairly well during this quarter, but this may deteriorate later.
The bank’s gross non-performing assets (NPAs) rose to 3.11% against 2.50% a year ago and loans worth Rs2,621 crore turned bad in the quarter. The gross NPAs stood at 3.11% of its advances against 2.50% a year ago. After making provisions, the net NPAs were 1.88% of advances against 1.39% a year ago.
The net increase in NPAs of Rs1,485 crore in the third quarter was mainly on account of loans given to small and medium enterprises (SMEs) and retail consumers turning bad. SMEs and retail consumers contributed Rs371 crore and Rs238 crore, respectively, to its bad assets in the December quarter.
SBI chairman O.P. Bhatt said about 6% of restructured assets have turned into NPAs so far and the bank expects about 10% of the restructured assets to become NPAs. It has restructured Rs16,796 crore after the Indian central bank allowed all commercial banks to recast loans where borrowers, affected by a slowing economy, are unable to service them.
The bank’s net interest margin (NIM), or the difference between the cost of funds and interest earned on funds and a key measure of a bank’s profitability, was down at 2.82% in the quarter compared with 3.10% a year ago. This is because of a reduction in lending rates from 13% to 11.75%. By the end of this fiscal, the bank’s NIM will be 2.9-3%, Bhatt said.
Advances for the quarter rose 19.15% to Rs6.07 trillion, higher than the industry average of 13.7%. Its deposit liability rose 11.26% to Rs7.7 trillion even as the bank redeemed Rs60,000 crore in high-cost bulk deposits.
Bhatt said his bank is receiving Rs5,000 crore per month low-cost savings deposits and Rs6,700 crore term deposits. The increase in low-cost savings deposits and retirement of the bulk deposits took the bank’s current and savings ratio to 42.94% in the quarter against 36.58% a year ago.
“We had a huge liquidity this quarter and this is costing us much. The carrying cost for this is about Rs215 crore while the opportunity cost is about Rs600 crore,” Bhatt said.
“Even if RBI (Reserve Bank of India) increases CRR (cash reserve ratio) by 50 basis points, our liquidity reduces by Rs6,000-7,000 crore, whereas we have an average liquidity of Rs75,000 crore. In this situation, lending rates will not increase in the next six months,” Bhatt said. One basis point is one-hundredth of a percentage point.
SBI shares rose 0.15% to close at Rs2,093.35 a piece on the Bombay Stock Exchange while the exchange’s benchmark index lost 0.47%. The bank announced its earnings after market hours.
Bloomberg contributed to this story.