BackSBI posts first profit increase in six quarters
Net profit rises 3% to Rs3,349 crore in June quarter as bank curbs bad loans, gains from higher loan demand
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Mumbai: India’s largest lender by assets, State Bank of India (SBI), a proxy for Asia’s third biggest economy, posted its first profit increase in six quarters as it benefited from higher loan demand and curbed bad loans.
Net profit rose 3.34% in the three months ended 30 June to ₹ 3,349 crore from ₹ 3,241 crore a year earlier, said the bank, which forecast an improvement in its asset quality, subject to an increase in economic growth.
The profit surpassed expectations. SBI had been expected to post a net profit of ₹ 3,277.4 crore in the fiscal first quarter, based on the median of estimates by 31 analysts surveyed by Bloomberg.
“Growth in income from loans and improving asset quality is driving the profit growth," Asutosh Kumar Mishra, a Mumbai-based banking analyst at Karvy Stock Broking Ltd, said by phone. “Still, investors are waiting to be convinced that improvements in asset quality will be sustained."
State-owned banks have been burdened by rising bad loans as an economic downturn that pushed growth to sub-5% levels for two consecutive years, high borrowing costs, and delayed projects crimped corporate cash flows and made it difficult for borrowers to repay debt.
SBI is expecting the economy to pick up, and the bank’s management said asset quality pressures could have eased already.
“Pressures as such do appear to be subsiding. We need the economy to pick up to see an appreciable change in asset quality," chairperson Arundhati Bhattacharya told reporters.
The Reserve Bank of India expects economic growth to rise to 5.5% in the current fiscal year against 4.7% in the year ended 31 March 2014 and 4.5% in the preceding year.
On Friday, SBI shares closed at ₹ 2,415.25 each on BSE, down 0.9% from the previous close. The exchange’s benchmark Sensex fell 1.02% to 25,329.14 points while the Bankex lost 1.51%.
It is the first time since October-December 2012 that SBI’s quarterly profit rose year-on-year.
“The amount of stressed assets on the bank’s books has come down as compared to the previous quarter, which shows that the stress is moderating gradually," said Rajiv Mehta, executive vice-president at securities house IIFL.
Shares of the 208-year-old lender surged 40% in the three months through June, the most in almost four years, as investors bet on Bhattacharya reining in bad loans and newly elected Prime Minister Narendra Modi spurring India’s economy.
SBI’s gross non-performing assets (GNPAs) as a portion of total loans fell 66 basis points from a year earlier to 4.9%. The ratio was almost steady from the bank’s March quarter GNPA ratio of 4.95%. A basis point is one-hundredth of a percentage point.
Provisions for the quarter totalled ₹ 3,497 crore compared with ₹ 2,866 crore a year ago. Of this, provisions for bad loans rose 72% year-on-year to ₹ 3,903 crore in the quarter from ₹ 2,266 crore in the same period last year.
In the January-March quarter, the provisions for NPAs were at ₹ 5,884 crore.
Post-provisions, net NPAs rose marginally to 2.66% in the three months ended June, from 2.57% in the January-March quarter and fell from 2.83% from the year-ago quarter. Fresh slippages, or good loans turning bad, rose to ₹ 9,932 crore in the April-June quarter from ₹ 7,947 crore in the January-March quarter and fell from ₹ 13,766 crore a year ago.
SBI’s Bhattacharya clarified that traditionally the bank sees the highest slippages in the fiscal first quarter.
However, June quarter’s slippages spiked, as a sizeable portion—about ₹ 1,960 crore—were in the agriculture sector, half of which came from Andhra Pradesh and Telangana where loan waivers have been announced by their new state governments.
According to Bhattacharya, the loan waiver proposal has damaged the credit discipline of borrowers and had “some induction effect in other states" as well. Farmers in election-bound states have stopped repaying loans, expecting political handouts. Besides, not only have farmers defaulted on agricultural loans, they have started defaulting on other related retail loans, like gold loans.
The bank also wrote off ₹ 6,556 crore of loans after selling them to an asset reconstruction company. It restructured ₹ 5,700 crore of loans in the quarter.
Operationally, SBI had a strong quarter with net interest income (NII) rising 15% to ₹ 13,252 crore. NII is the difference between what a bank earns from lending and what it pays on deposits.
The domestic net interest margin, or the difference between the yield on advances and the cost of deposits, a key gauge of bank profitability, increased to 3.54% from 3.49% in the January-March quarter and 3.44% in the year-ago period.
Interest and non-interest income combined rose to ₹ 40,739 crore from ₹ 36,193 crore a year ago. Non-interest income dropped to ₹ 4,252 crore from ₹ 4,474 crore.
During the quarter, the bank’s deposit base grew 12.85% from a year ago to ₹ 14,18,915 crore. Gross advances during the quarter increased 12.52% to ₹ 12,32,288 crore.
Advances to large companies grew by 33.77% while advances to mid-sized ones rose by just 4.38%. Advances to small and medium enterprises fell 1.37% while retail advances grew at 11.96%. The bank did not lend to fresh projects in the first quarter.
“While we are seeing de-clogging of projects and disbursements have started happening for existing projects, no new project actually has come up to us for appraisal," said Bhattacharya.
Bloomberg contributed to this story.
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