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Mumbai: As State Bank of India, India’s largest lender, gets set to announce its January-March quarter results, all eyes will be on its asset quality conditions. This will be the first earnings announcement after SBI completed the merger of five associate banks on 1 April.
A Bloomberg poll of 21 brokers expects the bank to post a net profit of Rs2,670.5 for the fourth quarter compared to Rs1,264 crore during the same period last year.
SBI’s performance in managing bad assets has been better than that of its peers among public sector banks.
As a percentage of total assets, gross non-performing assets (NPAs) of the five associate banks stood at 14.5% at the end of December 2016 compared to 13.77% in September 2016 and 9.14% in June 2016. In comparison, SBI’s standalone gross NPA stood at 7.23% of total assets at the end of the December quarter as against 7.14% in the previous quarter.
While SBI’s asset quality has not deteriorated further, the pace of improvement had slowed down post the government’s demonetisation exercise as cash-dependent borrowers found it difficult to repay debt. With the recent amendment of the Banking Regulation Act and the tweaking of rules relating to the Joint Lenders’ Forum, analysts will closely watch chairman Arundhati Bhattacharya’s commentary on the resolution of bad loans in the current financial year.
Analysts will also look out for any divergences in the assessment of SBI’s asset quality after the Reserve Bank of India (RBI) increased disclosure norms for banks. So far, private sector lenders like Yes bank, ICICI Bank and Axis Bank have reported sharp divergences in non-performing assets (NPAs) post the March quarter earnings.
Apart from bad loans, outlook on loan growth will be another aspect to watch. Loan growth in the system has been at record lows due to weak investment demand.
In an interview to Mint, Bhattacharya had said she expects credit growth to be around 7-8% due to pick-up in industry demand from sectors such as roads, railways, transmission, fertilizers, renewable energy, affordable housing and some amount of work in smart city projects. During the December quarter, SBI’s domestic advances grew by 4.2% to Rs14. 97 trillion.
The quarter also saw SBI cut its marginal cost of funds-based lending rate (MCLR) to its lowest in several years. The bank further cut its home loan rate to 8.35% from 8.6%. Analysts expect margins to be muted and net interest income (NII) growth to be supported by lower funding cost, thanks to the strong growth in current and savings accounts during demonetisation.