SBI reported a net profit of ₹6,504 crore in the three months to June, 55% higher year-on-year, on the back of lower provisions. On a whole, the bank’s asset quality deteriorated sequentially on account of covid-19
Despite rising delinquencies in home loans, State Bank of India (SBI) has no plans to rethink its strategy of aggressively growing this portfolio, given the significant potential of home finance, chairman Dinesh Khara said.
Even as SBI’s market share in home loans during the quarter rose by 24 basis points (bps) sequentially, bad loans rose by 59 bps. The bank saw an 11% growth in mortgages on a year-on-year basis.
“When it comes to home loans, the market potential is huge, and there is no reason for us to slow down. We have mastered how to ensure right appraisals and timely distribution and would like to continue doing well," Khara told reporters at the bank’s June quarter earnings announcement. India’s largest lender had outstanding home loans of ₹5.05 trillion as of 30 June.
The rise in mortgage loan defaults shows how economic distress during the second wave and the ensuing lockdowns crimped the repayment capabilities of smaller businesses, many of whom are home loan borrowers as well. Almost 50% of SBI’s home loan book is made to the non-salaried class, Khara said.
“Stress seen in this book is on account of disruption in cash flows for small and medium enterprises (SMEs). Our home loans are (to) first-time buyers. So, there will be all efforts and endeavours on their part to honour their obligation, and I hope that it is not as much of a concern," he said, adding the bank has already brought down bad loans to those purchasing homes from 1.39% as of 30 June to 1.14% through subsequent recoveries in July. The bank hopes to see less than 1% bad loans in this segment, he said.
Asset quality of SBI’s personal gold loan book of ₹21,293 crore was also impacted, with bad loans of 2.24% in the June quarter, as against 0.82% in the March quarter, as movement restrictions impacted recoveries.
The bank reported a profit of ₹6,504 crore in the three months to June, 55% more than the year-earlier period, on the back of lower provisions. On the whole, SBI’s asset quality deteriorated sequentially on account of covid. Its gross bad loans were at 5.32% of its total advances, up 34 bps sequentially. However, slippages of ₹15,666 crore in the June quarter were lower than ₹21,934 crore in the March quarter.
“We have seen slippages coming from SMEs and the home loan segments. The bank has seen a decent pull-back or recoveries from home loans and other retail borrowers. The SME sector is a little stickier, and we see better traction for debt restructuring from this sector," he said.
Of the ₹7,300 crore of loan recast requests under the Reserve Bank of India’s (RBI) second window, about ₹1,400 crore came from the SME sector, and the bank has already recast about ₹1,100 crore of SME loans. The bank is hopeful that with lockdowns largely absent in this quarter, economic activity should pick up, and slippages would be rectified. To be sure, the bank has since 30 June recovered ₹4,700 crore of loans from those that turned non-performing in Q1.
“We have seen a very tough June quarter, so it is too early to really come out with any kind of guidance. But our endeavour would be to keep the slippage ratio within 2%," said Khara.
Khara said the bank’s retail credit growth in FY22 will be on the same lines as the previous fiscal. On the corporate side and especially the mid-corporates, SBI is witnessing higher utilizations of loan limits, a sign of improving demand. The bank, he said, would be able to achieve an aggregate loan growth of 9% in FY22.
“We are only waiting for the opportunity to support credit growth, but it will emanate from borrowers and the real economy," he said.
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