New Delhi: Faced with rising bad assets, banking major SBI will divest non-core investments of around Rs3,000 crore to shore up its capital.
Despite the challenges that SBI faced last fiscal, the bank, however, is well capitalised to “absorb future shocks" and maintain future growth trajectory, according to the state-run lender’s Annual Report for 2015-16.
Asset quality pressures accelerated during 2015-16 due to continued stress in the economy, declining commodity prices and two successive drought years, SBI chairperson Arundhati Bhattacharya said in the Annual Report.
“With the passage of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 a missing link of institutional intervention has been addressed, which will speed up the recovery process", she said.
Also with the passage of the Bankruptcy Law, resolution of stressed assets is expected to become more systematic and timely, she said.
SBI had reported over 66% fall in net profit for January-March quarter of FY2015-16 due to more than two-fold rise in provisioning for bad loans. The bank faced slippages of about Rs30,000 crore in the quarter.
The bank, however, said that the current fiscal looks “more promising". “FY17 is expected to be more promising than the previous year primarily because a regime of clear and stable policy environment is now evidently visible. The government has embarked on promoting many new sectors with an eye on the future", Bhattacharya said.
New sectors include coastal shipping, affordable housing, offshore wind energy, defense manufacturing and railways.
“The Bank may also consider divestment of non-core investments/subsidiaries to add more than Rs3,000 crore to optimise its available capital", SBI said.
Capital Adequacy Ratio of the bank under Basel III improved to 13.12% in March 2016 from 12% in 15 March. Further, it said revaluation of real estate assets is yet to be reckoned in capital adequacy calculations. Real estate revaluation estimated increase in tier-I capital is more than Rs10,000 crore.
Bhattacharya added that profitability during last fiscal was expected to be under pressure due to two reasons.
Firstly, there was a 0.7% (70 bps) correction in the base rate which impacted the interest income of the bank. The interest income growth moderated to 2.96% during 2015-16, she said.
Secondly, front loading of provisioning on account of RBI’s Asset Quality Review (AQR) during the third and the fourth quarters also adversely impacted the net profit of the Bank.
As per AQR norms, SBI reclassified as well beefed up its provisioning against certain advances and went beyond RBI’s directive which resulted in an increase in NPA provision by Rs9,076 crore to Rs26,984 crore in 2015-16.
Over and above the loan loss provisions held on NPAs, the bank also had Rs3,383 crore as additional provision.
“The gross NPAs or bad loans therefore went up by 225 bps at 6.50% in FY16 as against 4.25% in FY15. Net NPA on the other hand went up by 169 bps at 3.81% in FY16 as against 2.12 per cent in FY15", read the chairperson’s message.
SBI said despite rise in bad loans there were notable improvements in some pockets of the loan book. However, on a positive note, SBI remained cautious while lending to mid-corporate and SME segments.
State Bank of India (SBI) is India’s largest commercial Bank in terms of assets, deposits, profits, branches, number of customers and employees.