New Delhi: Riding on high interest income and a drop in the cost of deposits, State Bank of India (SBI), the nation’s largest lender, beat estimates to post a net profit of Rs2,914 crore for the first quarter ended June, 25.05% higher than the year earlier.
Net interest margin (NIM), or the spread between return on advances and the cost of funds, grew 88 basis points (bps) to 3.18%, leading to a substantial growth in net interest income. One basis point is one-hundredth of a percentage point.
The main reason behind the rise in NIM is growth in low-cost deposits. Most public sector banks have lower than 3% NIM.
Sequentially, its NIM has risen in each of the last four quarters.
O.P. Bhatt, SBI’s chairman, said the bank would be able to maintain interest margins in the forthcoming quarters even as the interest rates on both deposits and advances trend upwards.
SBI shares rose 6.93% to close at a lifetime high of Rs2,784 on the Bombay Stock Exchange on Thursday. The key Sensex rose 0.02% to end at 18,073.90 points.
The bank plans to boost equity capital through a Rs20,000 crore rights issue this fiscal to meet its annual credit growth target of around 21-22%, Bhatt said.
In a separate development, Parliament on Thursday cleared a legislation allowing the government to pare its stake in the bank to as low as 51% from the current floor of 55%. The legislation also allows bonus share issues. Currently, it holds 59.41% in SBI.
Margins have improved sharply, driven by lower deposit costs, said Manish Karwa, analyst at Kotak Securities Ltd, who has a buy rating. “Most banks we track have seen an improvement in margins this quarter, but for SBI it’s a lot stronger; we think this is a sustainable trend.”
“Net interest income is looking very good. I think this growth should continue as, in a rising interest rate environment, SBI is best positioned in the sector,” said Vaibhav Agrawal, analyst at Angel Broking Ltd.
The expansion in NIM came in the wake of the increase in the proportion of low-cost deposits, or Casa (current account and savings account), in the overall pool of deposits. Casa increased to 47.51% of total deposits from 38.45% a year ago.
Bhatt indicated growth in the proportion of Casa may have reached a natural barrier as more than 50% of SBI’s assets are locked in long-term loans, and a further rise in the proportion of demand deposits was not prudent. Aggregate deposits at the end of the first quarter stood at Rs8.15 trillion, up 6.78% year-on-year. Advances grew 20.74% to Rs6.63 trillion. Interest income grew 5.61% to Rs18,452 crore. Interest expenses fell 10.44% to Rs11,148 crore.
According to Bhatt, credit growth will come primarily from infrastructure and retail portfolios. The bank has a credit pipeline of Rs50,000 crore, he said.
The retail portfolio was a key contributor. Home loans grew 29.83% to Rs74,669 crore while auto loans rose 48.06% on a relatively lower base.
According to S.K. Bhattacharyya, managing director, the retail loan book has drawn a lot of younger customers.
The retail portfolio, especially unsecured loans, was also one of the top contributors to growth in bad loans. Yield on retail advances was 10.26%, 96 bps more than average yield on all advances.
Large corporate advances grew 34.72% to Rs95,603 crore.
Gross non-performing assets (NPAs) rose Rs1,290 crore to Rs0,825 crore mainly on account of agricultural loans going bad.
Though the retail portfolio was the largest contributor to gross NPAs in the quarter under review after agriculture, “bulk of pressure is coming from big corporates and SMEs (small and medium enterprises),” Bhatt said, commenting on the trend.
The bank’s net NPA as a percentage of advances rose to 1.70% from 1.55% a year ago.
Bloomberg and Reuters contributed to this story.