Mumbai: A bank’s health is a good reflection of the health of its borrowers. What better way is there to judge if corporate India has recovered than through the balance sheet of the country’s largest lender, State Bank of India (SBI).

The lender’s June quarter numbers reveal a not-so-flattering picture of the industry that is recovering from its past debt binge and bad decisions. The bank reported its third consecutive loss because there was no slowing down in its provisioning. Its profits went towards providing for rising bad assets, a hostile bond market and wage revision of employees.

SBI had to provide a staggering 19,228 crore out of which about 77% was towards bad loans and the rest towards bond losses. Consequently, the net loss of 4,816 crore was a far cry from the Street estimate of a nominal profit. It exceeded even the worst possible net loss pencilled in by some analysts.

The biggest trouble at SBI is of course stressed assets even today. The management does not seem too optimistic towards recoveries from insolvency proceedings at the courts. The lender has provided 65% towards the first 12 accounts referred to the insolvency courts and jacked up its provisions to cover nearly 80% of the value of the next 28 accounts.

Indeed, SBI believes haircuts from the second list of borrowers undergoing insolvency proceedings (where it has 28,435 crore exposure) will be deep. It has left nothing to chance and has chosen to take the knock on profits for a third consecutive quarter. The lender has already written off a few accounts from the lists anticipating liquidation of the assets.

Investors derived fresh hope on the success of the Insolvency and Bankruptcy Code (IBC) when two accounts—Bhushan Steel Ltd and Electrosteel Steels Ltd—were resolved with reasonable haircuts. However, the fate of the other cases is not so bright and SBI seems to know that.

Borrowers outside IBC aren’t really improving their loan repayment behaviour. SBI’s watchlist of stressed loans that may potentially turn non-performing stands at 24,633 crore. In the coming quarters, the lender will continue to provide more against dodgy power sector loans, another pain point for most banks.

SBI’s investors have shown their faith in the bank by driving the stock up in the last two months following a clear guidance from the management during the quarter ended March results. The management has stuck to its outlook of bringing down credit costs to 2% by fiscal year 2020 (FY20).

What will test SBI’s resolve is the rather tepid growth in its operating metrics. Its operating profit barely grew, although core income expanded by a healthy 24%. Loan growth continues to be weak and the bank has pegged its advances growth at 10% for the current fiscal year.

The SBI stock fell 3.8% on Friday in response to the quarterly loss. At the current level, it trades at a multiple of 1.2 times its estimated FY20 book value.

The writer does not have any positions in the companies mentioned above.