India’s largest private lender ICICI Bank Ltd’s loss has been State Bank of India’s (SBI) gain. SBI’s deposits during the December quarter went up by Rs73,204 crore, a huge increase of 11.8% compared with the end-September level. Certainly, a part of this rise is due to the panic last October, which saw depositors shift their funds to state-owned banks. Compared with this big rise in deposits, net loan growth has been relatively modest, at Rs10,416 crore during the quarter, or a rise of 2.1% compared with the September quarter.
Net interest margin improved to 3.15 percentage points from 3.01 percentage points in the year-ago period, while net interest income grew by 35% year-on-year (y-o-y). This was boosted by a rise, not so much in interest on advances or investments, but in “sundry interest”, which was Rs1,013 crore during the quarter, against Rs32 crore in the year-ago period and Rs54 crore in the September quarter. This amount is possibly the interest on the special bonds issued by the government by way of subscription to the bank’s rights issue. At the same time, there was also a rise in “sundry interest” expenses, although it wasn’t as sharp as the rise in income. The bank has said that the rise in interest expenses includes interest on tier II capital bonds.
Fee income was up 57% y-o-y and profit on sale of investment was only a bit more than in the December 2007 quarter. But there was a huge rise in staff expenses as the bank had to contribute Rs750 crore towards its pension fund account under Accounting Standard, or AS, 15. Since returns on government bonds have fallen sharply, the present value of pension benefits has shot up and SBI has had to provide for it under the accounting rules. That has pulled down the bank’s operating profit growth to 22.5% y-o-y.
Bad debt: A State Bank of India branch in New Delhi. The lender’s ratio of gross non-performing assets has gone up to 2.61%. Madhu Kapparath / Mint
Net profit has been boosted by write-back of investment depreciation and although loan-loss provision is higher than that in the year-ago period, other provisions are lower. The upshot: At 27% y-o-y, net profit has risen more than operating profit.
Asset quality continues to be a concern. Gross non-performing assets (NPAs) have risen by Rs762 crore during the quarter and the gross NPA ratio has gone up to 2.61% from 2.51% at the end of September. But the provision cover has increased and the net NPA ratio is around the same as it was at end-September. While ICICI Bank’s gross NPAs have decreased, SBI’s have gone up, in spite of the new rules for restructuring that effectively defer NPAs. That difference will weigh on SBI’s valuations, as will the recent news that it plans to raise more capital.
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