SBI net up marginally as bad loan provisions bite

SBI net up marginally as bad loan provisions bite

Mumbai/New Delhi: State Bank of India’s (SBI) net profit for the September quarter rose marginally to 2,501 crore from Rs2,490 crore, but fell far short of analysts’ estimates as the nation’s largest lender increased provisions for bad loans.

A Reuters poll of brokerages had forecast SBI’s net profit would grow to Rs3,029 crore while Bloomberg had put it at Rs2,940 crore.

On a consolidated basis, SBI’s net profit dropped 22.51% to Rs2,364 crore in the July-September quarter from Rs3,051 crore, the second such decline in the past three quarters, as provisions rose three times with bad loans worth Rs4,412 crore added in the quarter.

Provisions rose to Rs3,571 crore from Rs1,202 crore in the consolidated balance sheet and Rs3,055 crore of this was on account of bad loans. Of the Rs4,412 crore, Rs799 crore of bad loans was written off while Rs2,087 crore was recovered, an SBI release said.

“After due consideration, we decided to increase the loan loss provisions from our surplus this quarter," SBI chairman O.P. Bhatt said, while pointing to the increase in net interest income, improved net interest margins and higher fee income.

On a stand-alone basis, the bank’s net interest income rose 45% to Rs8,115 crore on higher loan growth in the world’s third fastest growing major economy.

Net interest margins, or the difference between interest charged on loans and that paid on deposits, improved 87 basis points to 3.3% from 2.43% last year. One basis point is one-hundredth of a percentage point.

The bank’s fee income rose 40%.

SBI’s managing director R. Sridharan said the bank absorbed a loss of more than Rs800 crore after the absorption of associate bank, State Bank of Indore, because of additional benefits that its employees had to be given.

SBI dropped 1.92% to 3,422.65 on Monday on the Bombay Stock Exchange even as the Sensex, the bourse’s benchmark index, lost 0.73%. The bank announced its earnings after market hours. The stock rose to a 52-week high of Rs3,515 per share during the day.

Suresh Ganapathy, head of the financial research team at Macquarie Securities Group, said the increase in operational expenses and provisions will continue to pose problems for the bank for the rest of the fiscal year.

“The quality of assets is an issue with slippages of restructured loans being stubbornly high," he said.

SBI has increased its provision coverage ratio to 62.78% in September from 59.14% in the same month last year, the bank said in a press release. Bhatt said the bank will ramp up coverage by 2 to 3 percentage points every quarter to 70% by September 2011.

Under central bank norms, a bank needs to provision for 70% of loans irrespective of their quality.

A.S.V. Krishnan, an analyst with Ambit Capital Pvt. Ltd, said the increase in slippages—a technical term that refers to fresh bad assets—quarter after quarter is worrying.

The bank added Rs1,300 crore of net non-performing assets (NPAs) in the quarter ended June, Rs158 crore of which came from restructured loans. The figure has increased to Rs2,380 crore in the quarter ended September and 660 crore of this come from restructured loans.

The Reserve Bank of India allowed banks to restructure loans in the wake of the global credit crunch that followed the collapse of US investment bank Lehman Brothers Holdings Inc. in September 2008.

Krishnan said the sharp rise in net interest income could drop as credit growth picks up in the second half of the year and this may force the bank to raise high-cost deposits to support loan growth.

“The rise in NII (net interest income) is surprising, but that is because the bank’s deposit growth is in single digits as it didn’t need to add high-cost deposits because of the sagging credit growth. But once that changes, the NII growth will be more in line with the credit growth at around 20%," Krishnan said.

ICICI Bank Ltd, India’s largest private sector lender, reported a 19% rise in net profit for the September quarter.