State Bank of India’s (SBI) net profit growth in the December quarter was flat compared with the year-ago period, but one big reason for that was a huge rise in investment depreciation, a consequence of the rise in yields and the fall in prices of government securities. At the operating profit level, the bank posted a year-on-year (y-o-y) rise of 3%. But that again was low partly because of lower profit on sale of investments.
Adjusted for that factor, the “core” operating profit growth was a more respectable 9.7%.
In fact, the bank’s core operations showed decent traction. Net interest income was up a respectable 9.7%. Though net interest margin was lower than in the year-ago period, it was well above that for the September quarter, thanks to SBI’s continuing effort to get rid of high-cost deposits. In fact, total deposits at the end of December were lower than at end-September, while advances continued to rise. The upshot was an increase in the credit-deposit (C-D) percentage to 71.48%, against 67.54% at the end of September. SBI’s C-D ratio is now above the average for all-scheduled commercial banks, which is at 70.51%. The percentage of low-cost current and savings bank accounts improved further. Core fee income was up a robust 36% y-o-y.
Graphic: Naveen Kumar Saini / Mint
As for bad loans, new non-performing assets (NPAs) during the quarter totalled Rs2,621 crore, much lower than the Rs6,718 crore worth of fresh NPAs in the September quarter, although the net NPA percentage went up from 1.73% at end-September to 1.88%. But that was widely expected, given the pace of growth of the bank’s advances—for example, SBI’s share of incremental growth in home loans between April and October was 84%. The point is that, despite the lack of growth in its profit, SBI’s core operations did rather well during the December quarter.
Looking ahead, SBI will be a big beneficiary of the revival in credit growth. The bank has estimated the opportunity loss on account of the liquidity overhang at Rs600 crore in the December quarter. The more immediate source of concern, though, is the fact that the provision cover slipped during the quarter to 56.2% (including the technical write-offs), from 59.14% at the end of September. SBI will have to increase provisions in order to comply with RBI’s directive of attaining 70% provision cover by September this year and that will affect the profit.