However, bad assets may not have improved much as the lender did huge restructuring and sold a chunk of its assets to ARCs
Mumbai: State Bank of India (SBI) on Friday posted a higher-than-expected fiscal fourth quarter net profit and said project loan enquiries were trickling in and asset quality concerns easing—the first green shoots reported by the nation’s largest lender by assets
SBI’s net profit rose 23% to ₹ 3,742.02 crore in the three months ended 31 March from ₹ 3,040.74 crore in the year-ago period. Analysts polled by Bloomberg had estimated net profit at ₹ 3,571 crore.
The state-owned lender’s gross non-performing assets (NPA) as a percentage of total advances, or gross NPA ratio, fell to 4.25% from 4.95% a year ago and 4.9% in the third quarter.
Fresh slippages, or good loans turning bad, declined to ₹ 4,769 crore in the quarter from ₹ 7,947 crore in the year-ago quarter and7,043 crore in the third quarter.
“The stress is coming down," said the bank’s chairperson Arundhati Bhattacharya.
“Going forward, we do believe that we’ll be able to hold (the bad loan ratio) at this level or over a period of time try and bring it further down," Bhattacharya told a news conference in Kolkata.
SBI expects loan growth to accelerate to around 14% for the fiscal year to March 2016, Bhattacharya said. That compares with an adjusted loan growth of about 10.5% the year before.
“Credit demand is not flooding yet, but there is interest both from private and public sector," Bhattacharya said, adding that it would take two more quarters for demand to pick up,
Delays in securing statutory project approvals, high finance costs and slowing demand in the economy crimped corporate cash flows in recent years and made it difficult for many borrowers to repay debt, leading to a pile-up of bad loans in India’s banking system.
Many banks have had to restructure corporate loans by stretching the repayment period and lowering the borrowing rate to avoid them being classified as NPAs and setting aside money to cover the risk of default.
SBI restructured ₹ 11,885 crore of loans in the March quarter, a fourfold increase from the third quarter’s ₹ 2,580 crore.
Staring on 1 April, banks are required to set aside at least 15% of the value of a restructured loan to cover the risk of default, compared with 5% until the quarter ended 31 March. That prompted many banks to undertake aggressive restructuring of stressed loans in the fiscal fourth quarter.
“This (high restructuring) is the result of the window shutting," said Bhattacharya.
“The restructuring was (a) little more than we expected. It will take another two quarters for the economy to come up and hence very many small accounts have gone for restructuring. Nobody wants to have an NPA tag," she added.
SBI’s provisions for bad loans fell to ₹ 4,635.43 crore from ₹ 5,883.75 crore in the year-ago quarter and from ₹ 4,717.44 crore in the year-ago period.
After provisioning, its net NPA ratio fell to 2.12% from 2.57% in the same quarter a year ago and 2.8% in the third quarter.
In the fourth quarter, the bank wrote off ₹ 4,874 crore of loans from its balance sheet, while it sold ₹ 4,510 crore of loans to asset reconstruction companies (ARCs). In the third quarter, the bank had to write off ₹ 5,096 crore of loans and did not sell any asset to ARCs. The bank managed to recover ₹ 4,485 crore of its past bad loans in the fourth quarter, compared with ₹ 602 crore in the third.
Vaibhav Agrawal, an analyst at Angel Broking Pvt. Ltd, said the bank’s “performance on asset quality front was commendable", after the results were declared on the stock exchanges. After the press conference he said the restructuring numbers were a “negative surprise".
Apart from the restructuring figures, other numbers of the bank were “generally good", Agrawal said over phone.
The bank’s shares were trading almost 4% higher from its previous close after the results were declared. But the stock closed down 2.38% at ₹ 282.45 after the details of restructuring emerged. The benchmark BSE index Sensex closed up 0.53% at 27,957.50 points.
SBI’s net interest margin (NIM), or the difference between yields on advances and cost of deposits, widened to 3.54%, from 3.50% in the third quarter, but down from the year-ago quarter’s 3.66%.
“We expect NIM to be stable and likely to be in the range of 3.5% for the year—that’s the sweet spot for us," Bhattacharya said.
SBI’s net interest income rose 14.01% to ₹ 14,711.76 crore from ₹ 12,902.81 crore in the year-ago quarter. Non-interest income, including treasury income, increased 29.3% to ₹ 8,515.25 crore from ₹ 6,585.65 crore in the year-ago quarter.
Profit from treasury operations more than doubled to ₹ 2,738.73 crore from ₹ 1,256.33 crore in the year-ago quarter, as the bank took advantage of falling bond yields in the March quarter.
According to Bhattacharya, there are still concerns about some of the sectors in the economy.
In the power sector, projects are coming up but electricity distribution companies are not able to secure power purchase contracts. In iron and steel, out of 21 million tonnes of steel consumed in India, 13 million tonnes, or 65%, is coming from countries such as China, Russia and Ukraine, which is a concern, she said.