Despite bad loans piling up at an alarming rate, State Bank of India (SBI) seems to have eased up on increasing provisions, September quarter results show.

Photo; Bloomberg

Gross non-performing assets (NPAs) rose by 6,178 crore in the September quarter. It was much higher than the 2,442 crore accumulation to the gross NPA figure in the June quarter. It also meant that gross NPAs as a portion of total debt rose to 4.19%, possibly the highest among all banks that have declared September quarter earnings, barring Development Credit Bank. This metric was 3.52% at the end of the June quarter for SBI.

However, the bank doesn’t seem to have provided enough for this rise in bad loans. Sure, on a year-on-year basis, total provisions grew 21%, while loan loss provisions grew 35%. However, on a sequential basis—and we are talking about a 6,178 crore increase—total provisions declined 17%, while loan loss provisions rose 5%. Thus, SBI’s provision coverage ratio slipped to 63.5%, well below the 67.25% recorded in the June quarter.

Yogesh Kumar/Mint

One positive for SBI was the rise in net interest margins to 3.79%, a 17 basis points increase from the June quarter. One basis point is one-hundredth of a percentage point.

The bank was able to increase its yield on advances and focus on margins as it had indicated at the beginning of this fiscal year. But that also meant loan growth came in at a somewhat sedate 17% from a year ago.

SBI’s tier-I capital adequacy ratio has slipped further to 7.47% from 7.6% at the end of June. While there have been reports of the government agreeing to capitalize the bank, no action has been forthcoming. In its downgrade note on the Indian banking sector, Moody’s said the challenging macro environment will affect asset quality, capitalization and profitability.

On the other hand, SBI chairman Pratip Chaudhuri, in an interview to CNBC-TV18 news channel, talked about a “reversal of the (rise in NPA) trend because some of the accounts that went into the NPA category pretty late in the quarter are likely to come back".

Investors will hope he’s right, to justify the huge premium enjoyed by SBI over most of its public sector peers.

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