Mumbai: India’s largest lender State Bank of India (SBI) is seen reporting on Tuesday a quarterly loss for the second time in row. According to a poll of 14 analysts by Bloomberg, the bank is expected to post a Rs1,728 crore loss for the March quarter, or Q4.

SBI had posted net loss of Rs2,416 crore for the fiscal third quarter.

1. Profitability

SBI is likely to report a loss because of a hike in provisions to cover rising bad loans and losses on its bond portfolio. Non-performing assets (NPAs) are expected to surge because of the Reserve Bank of India’s (RBI’s) revised norms on stressed asset resolution.

Rising bond yields has strained profitability of most banks as they have to set aside funds in the form of mark-to-market (MTM) provisioning to make up for the losses. Bond yield and prices move in opposite direction.

“RBI circular on spreading of MTM losses over the next four quarters including the investment depreciation related losses for Q3 FY18 could provide some headroom to SBI. We await the bank’s move towards the same," Centrum Broking said in a pre-earnings report.

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2. Bad loans

SBI is likely to report a sharp jump in gross NPAs because of new additions from its restructured book, according to analysts. In its 12 February circular, RBI has withdrawn host of restructuring schemes and has set a 180-day timeline for resolution. SBI had over Rs36,900 crore of loans under erstwhile schemes like 5/25 refinancing, strategic debt restructuring (SDR) and scheme for sustainable structuring of stressed assets (S4A) as of 31 December 2017.

Analysts said that SBI chairman Rajnish Kumar’s commentary on asset quality trends and resolution under Insolvency and Bankruptcy Code (IBC) is key monitorable. SBI’s exposure fund-based exposure to accounts, which are part of the two lists of RBI and referred for insolvency stood at over 78,000 crore. The bank is holding a total provision of 60% against these accounts.

3. Loan growth

Analysts are expecting SBI to continue to print subdued loan growth mainly because of its cautious stance of corporate lending. However, retail loans are expected to grow in double digits. As of 31 December, SBI’s total loans grew 2.5% year-on-year to Rs19.2 trillion. Given the bank’s focus on profitability instead of balance sheet expansion, Kumar’s commentary on corporate loan opportunities would be watched out to gauge broader sectoral trend. Most large banks are limiting their exposure to only better rated companies. SBI too is working on a similar strategy.

4. Internal changes

Apart from earnings, SBI chairman Kumar is expected to spell out bank’s overall long-term strategy on capturing loan growth and risk management. The bank has already changed the mandate of its corporate account group (CAG) department to focus only on companies with at least AA rating. It has also decided not to work with merchant banking unit SBI Capital Markets on project financing and loan syndication. Kumar, who took over in October, may also share his plans on various subsidiaries of SBI. He is also expected to share his thoughts on health of the Indian banking sector, especially state-owned banks.

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