Mumbai: State Bank of India, the country’s largest lender, reported its biggest-ever quarterly loss on higher provisions but forecast that its asset quality will improve substantially in two years, sending its stock higher.

SBI reported a net loss of Rs7,718 crore for the quarter ended 31 March, the second highest quarterly loss reported by an Indian bank. It had reported a quarterly loss of Rs3,442 crore a year ago.

Investors, however, shrugged off the loss after SBI chairman Rajnish Kumar said that the worst is behind the lender and it is poised to capture growth opportunities with better focus on risk management and resolution. The stock surged as much as 6.2%, outpacing a 0.75% gain in the BSE Bankex. SBI shares ended up 3.69% on the BSE on Tuesday.

The bank forecast that by March 2020, it would bring down its gross bad loan ratio to below 6% from the current 10.91%, and its net bad loan ratio to less than 2.3% from 5.73% now.

“As far as the recognition of non-performing assets is concerned, that has been completed. We are fully compliant with the framework (on stressed loan resolution) issued by the RBI (Reserve Bank of India) on 12 February," Kumar said in a post-earnings press conference.

This is SBI’s second straight quarterly loss as the bank set aside more money to cover bad loans and losses on its bond portfolio. Change in calculation of employee gratuity also added to the losses.

Punjab National Bank, reeling under a $2 billion scam, on 15 May reported the highest ever quarterly loss by an Indian bank—Rs13,417 crore in the January-March period.

Kumar attributed the surge in the stock of gross bad loans to the central bank’s circular, where it withdrew a host of loan restructuring schemes and set a 180-day deadline for resolution of all stressed loans.

Accordingly, fresh loan slippages rose to Rs33,670 crore in the March quarter from Rs25,836 crore in the preceding three months. Total gross bad loans at the end of 31 March rose to Rs2.2 trillion from Rs1.8 trillion a year ago.

Kumar said the bulk of the loan slippages were loans which were part of various erstwhile restructuring schemes. With this, the only source of potential stress for the bank is the watchlist, which now stands at Rs25,800 crore.

Provisions and contingencies surged to Rs28,096 crore in the March quarter from Rs20,932 crore a year ago and Rs18,876 crore in the December quarter.

Total provisions include the so-called mark-to-market (MTM) provisions to cover losses on its bond portfolio as bond yields surged in the reporting quarter. Bond yield and prices move in opposite directions.

While RBI has allowed banks to spread MTM provisioning over four quarters, SBI chose to book losses in the March quarter itself, Kumar said.

However, the bank wrote back some provisions on accounts referred to the National Company Law Tribunal (NCLT) for insolvency proceedings as allowed by RBI. Kumar said despite that, overall provisioning for these accounts remains at an adequate level of 63% against the total exposure of a little over Rs77,600 crore.

Kumar said SBI expects the bulk of the resolutions in the first list of NCLT accounts by September and the second list by end of this fiscal.

“Resolution of NCLT accounts will lead to lower gross NPAs, in addition to better margins," SBI said in an analyst presentation.

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