State Bank of India’s (SBI’s) 137% increase in net profit for the June quarter from a year ago fails to mask the problems it is facing. Stressed loans are piling up for the bank even as it is slowing down on the operational side.

The June quarter numbers show that the good performance for the three months ended March may have been a temporary blip. In the June quarter, fresh slippages into bad loans totalled some 10,844 crore, nearly double what the bank had guided for.

Sandeep Bhatnagar/Mint

Also See | Stressed Assets (PDF)

Perhaps it didn’t have much choice. Operationally, the numbers are reflecting a slowdown from the March quarter. Net interest income grew 14.63% from a year ago in the June quarter against 43.84% in March. This is the slowest in at least eight quarters. Non-interest income shrank 1% in June compared with an 11.66% increase in March. Within this category, too, fee income grew a measly 1.2% year-on-year in the June quarter from 13.5% in March. The net result was that operating profit growth slowed down to 12.9% in June, way below the 57.85% in the fourth quarter of last fiscal.

Even the industry-beating 20% increase in SBI’s loan book from a year ago has come at a cost. The bank’s yield on advances declined 19 basis points sequentially, while its cost of deposits rose 29 basis points. As a result, net interest margin fell to 3.57% in June, down 18 basis points from a quarter ago. A basis point is 0.01%.

Also note that the fastest growing category in the loan book was farm debt, which grew 25.85% from a year ago. This is also a category that is seeing a fair amount of slippages, especially with a drought looming.

The outlook for SBI is sombre. With economic indicators showing that the economic downturn has not bottomed out, it is hard to see how India’s largest bank will fare any better.

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