Kolkata/Mumbai: State Bank of India’s (SBI) fourth quarter profit was almost wiped out by what the new chairman of the country’s largest lender referred to as a “one-time clean up” —higher provisioning towards sticky assets and retirement benefits.
The state-owned bank’s worst performance since reporting a Rs 115.2 crore loss in the third quarter of 1999-2000 sent its stock tumbling.
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SBI fell 7.78% to Rs 2,413.60 on the Bombay Stock Exchange. The bourse’s Sensex and Bankex indices fell 1.13% and 2.24%, respectively, on Tuesday.
Net profit in the three months to 31 March plunged 99% to Rs 20.88 crore from Rs 1,866.6 crore in the year earlier.
Profit for the full year fell 9.84% to Rs 8,264.52 crore, or Rs 130.16 per share.
The market overlooked positive news such as the 17% increase in the bank’s operating profit in the fourth quarter and expansion in net interest margin (NIM).
SBI put aside Rs 8,792 crore in fiscal 2011, 70.8% higher than the previous year, to comply with new Reserve Bank of India (RBI) regulations on provisioning towards loan losses. This includes a provision of Rs 500 crore for home loans disbursed by it at the so-called teaser rate of 8%, in line with RBI’s guidelines.
Total provisioning during fiscal 2011 at Rs 17,071 crore was 86.5% higher than the previous year.
The teaser rates apply to home loans disbursed at lower rates initially to attract customers. The rates are raised to market levels after a few years.
SBI will have to make a provision of at least Rs 1,100 crore more over the next two quarters for assets already on its books to become fully compliant with RBI’s new regulations, according to Diwakar Gupta, the lender’s managing director and chief financial officer.
However, no further provisioning is required for teaser-rate home loans because the bank has withdrawn the product, he said.
Even the depressed profit in the current fiscal would have been almost entirely wiped out had SBI not adjusted a Rs 7,927 crore provision towards pension liability against reserves, which pulled down the capital adequacy ratio (CAR) by 141 basis points from March last year to 11.98%.
One basis point is one-hundredth of a percentage point.
The reduced CAR will put pressure on the bank to raise capital—SBI is awaiting the Union government’s clearance to launch its rights issue.
The Economic Times newspaper reported on Tuesday, citing unnamed government officials, that the finance ministry might not be able to provide capital to SBI this year.
Chairman Pratip Chaudhuri, who took over from O.P. Bhatt in April, said he was confident that the Union government, which has already capitalized smaller public sector banks, would not turn its back on the “flagship bank”.
But even without shoring up its equity capital, SBI has headroom to expand its Rs 7.7 trillion loan book by up to 20% this year, according to Chaudhuri.
In fiscal 2011, SBI’s loan book grew Rs 1.3 trillion, or 20%, over the previous year. In the current year, too, the bank is expecting a similar growth in advances, though its focus could shift from individual borrowers to corporate consumers. It will do so to “even out” the thrust on retail lending in the past few years, Chaudhuri said.
“The results are definitely disappointing,” said Vaibhav Agarwal, vice-president (research) at Angel Broking Ltd. “Capital adequacy eroding is the key negative point for us. Earlier, we were of the view that the rights issue could be deferred, but it seems they need to do it very soon.”
Cleaning up books is good for the long term, said Saikiran Pulavarthy, banking analyst with Indiabulls Securities Ltd, but in the short term the market may not like the hit on the bank’s CAR. “Also, we have to see how profitability picks up (in the current year),” he added.
SBI said pensions had gone up in 2007, and so the increased provision for it shouldn’t have been charged to the profit and loss account of fiscal 2011. Doing so would have unreasonably distorted the financials for the year till March, said Gupta.
The bank’s total interest income in the quarter till March at Rs 21,721 crore was 20.9% higher year-on-year, and net interest income jumped 19.9% to Rs 8,058 crore.
Operating profit during the March quarter at Rs 6,080 crore was 17% higher than the corresponding period of last year. For the full year, operating profit grew 38.3% over fiscal 2010 to Rs 25,336 crore.
The bank’s net interest margin increased 66 basis points to 3.32% in fiscal 2011.
This, according to Chaudhuri, should expand further to 3.5% in the current year, though growth in advances could be at around 20%, 2-3 percentage points lower than initial targets.
Going forward, growth in sticky assets is a “key concern”, according to Chaudhuri, who said the bank had designated a deputy managing director to closely monitor non-performing assets (NPAs) and recovery of such loans.
The bank’s gross NPAs expanded by 23 basis points to 3.28% of its loan book in fiscal 2011, but its net NPAs were pared during the year from 1.72% to 1.63%.