Swachh SBI? Not yet

Out of State Bank of India’s Rs19,131 crore loans that slipped during the six months ended September, 40% was from its declared watch list


Gross NPA stock at State Bank of India, or SBI, got the distinction of crossing the Rs1 trillion-mark in the June quarter and it inched up a little more in the September quarter as well Photo: Pradeep Gaur/Mint
Gross NPA stock at State Bank of India, or SBI, got the distinction of crossing the Rs1 trillion-mark in the June quarter and it inched up a little more in the September quarter as well Photo: Pradeep Gaur/Mint

As the nation begins cleaning its cash hoard, its banks are still struggling with the hygiene of their loan books. State Bank of India (SBI), the country’s largest lender, was no different.

Against hopes of a better asset quality, the lender saw its fresh slippages increase again, the stock of gross non-performing assets (NPAs) double from a year ago and its net profit drop by 34% in the September quarter.

Slippages during the quarter were Rs10,341 crore and the tally of slippages for the first six months of this fiscal year is at Rs19,131 crore.

Its gross NPA stock got the distinction of crossing the Rs1 trillion-mark in the June quarter and it inched up a little more in the September quarter as well.

To be fair, investors should have seen this coming especially after the disappointing results of other corporate lenders such as ICICI Bank Ltd and Axis Bank Ltd.

Perhaps there was a thread of doubt that had investors playing safe as the SBI stock has hardly moved over the last two months. But the stock was rightly punished on Friday, with the disappointing results driving down its shares by over 3% to Rs272.90 apiece.

But there is more bad news.

Out of SBI’s Rs19,131 crore loans that slipped during the six months ended September, 40% was from its declared watch list. The management had put out a corporate loan watch list of Rs34,776 crore in March and at that time, analysts were comforted by the quantum given the lender’s huge loan book size. But 60% of SBI’s slippages have come from outside its watch list. While the list is now down to Rs25,951 crore, it is not sufficient to look at it excluding the larger book. A quarter of the watch list has already slipped, much of it stemming from the weak sectors like construction, roads, and iron and steel. Asset quality of its mid-corporate segment and small and medium enterprises hasn’t stabilized for over a year now.

Given that SBI would soon be a bigger behemoth after the merger of its associates, a look at the consolidated balance sheet is a must. The picture gets worse as the bad loan ratios of its associates are massive and their combined gross NPA ratio was 13.77% for the quarter and that of SBI was 7.41%. All of its five associates were loss-making for the six months ended September. 

By the very nature of its vast franchise and size, SBI would command a premium to its other peers. Further, the management has given a positive outlook on asset quality in the quarters ahead. The lender is betting on the recent leeway allowed by the Reserve Bank of India that effectively reduces the need for provisioning towards stressed assets.

With leveraged corporate groups in the throes of selling off their assets to pay back the lenders, SBI is hoping that resolution would be fast. For the stock to trade at a price-to-book value multiple of 1.04 its projected fiscal year 2017 earnings, this hope is the saving grace.

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