SBI saw corporate slippages of ₹5,354 cr, SME slippages of ₹3,964 cr; and agri slippages of ₹4,239 crore in Q1
Provisions and contingencies dropped 51.54% from the year-earlier quarter
India’s largest lender, State Bank of India (SBI), on Friday reported a net profit of ₹2,312 crore for the June quarter, compared to net loss of ₹4,875 crore in the year-ago quarter, owing to lower provisions and higher other income.
Profit came in substantially below a Bloomberg consensus estimate of 16 analysts that pegged it at ₹4,106 crore. In the three months ended June 2018, the bank had reported net loss for a third consecutive quarter, after setting aside funds to cover losses on its bond portfolio and increased gratuity.
While SBI’s total provisions more than halved on a year-on-year (y-o-y) basis from ₹19,228 crore to ₹9,183 crore in the June quarter, its other income rose 20% to ₹8,015 crore during the period under consideration.
SBI chairman Rajnish Kumar said the bank’s primary focus is on increasing its core operating profit or pre-provisioning operating profit.
The lender’s operating profit grew 10.6% to ₹13,246 crore in the quarter.
Kumar added that the growth in operating profit came off a higher base in the year-ago quarter, when the bank had recovered ₹1,900 crore from two accounts under the Insolvency and Bankruptcy Code.
“There (operating profit), I would say, we have been fairly successful," said Kumar.
SBI’s net interest income— the difference between interest earned and expended— rose 5% y-o-y to ₹22,939 crore and its net interest margin (NIM) rose 6 basis points y-o-y. NIM fell 1 basis point sequentially to 3.01%.
“In the current scenario where credit growth is muted, I think it will be very difficult for the bank to push up the NIM in a very significant manner. We expect domestic NIM to be at 3.1% by the end of FY20," said Kumar.
The bank’s asset quality improved, as the gross non-performing asset (NPA) ratio — gross bad loans as a percentage of total loans—declined 316 basis points y-o-y, but remained unchanged sequentially at 7.53%.Fresh additions to bad loans, however, rose to ₹16,212 crore in Q1, up from ₹9,984 crore from the same quarter last year.
Kumar said that one large account slipped in the quarter because a member bank of a particular consortium could not implement the resolution plan under the terms of the 12 February circular of the Reserve Bank of India, which meant that all banks had to classify it as an NPA.
Another contributer to higher slippages was the agriculture book, particularly because of one state, which had declared a loan waiver, leading to fresh bad loans, he added.
SBI saw corporate slippages of ₹5,354 crore; small and medium enterprises (SME) slippages of ₹3,964 crore; and agriculture slippages of ₹4,239 crore during the quarter.
“In the last five quarters, the bank has seen cumulative slippages of ₹56,700 crore. It has written-off ₹74,000 crore and has recovered and upgraded loans of ₹37,300 crore, thereby helping to build the reduction in bad loans as the write-offs and recoveries have been greater than the slippages," said an analyst at a domestic broking firm.
The bank improved its provision coverage ratio (PCR) to 79% in the June quarter of FY20, up from 69% in the same quarter of FY19. PCR is the proportion of money set aside to cover NPAs.
“In respect of two accounts, fairly large, we have provided about ₹ 2,300 crore which is not coming in to our PCR since these are not NPAs, but are currently under resolution," said Kumar.
He added that if these two accounts get resolved within the next six months, then the bank’s gross slippages position will be comfortable.
The bank’s recoveries and upgradations stood at ₹5,769 crore, while recoveries from written-off accounts were at ₹1,358 crore. Kumar said the bank expects a recovery of ₹16,000 crore from three accounts— Essar Steel, Bhushan Power and Steel and Alok Industries —that are in the final stages of resolution at the National Company Law Tribunal (NCLT).
“Every quarter I am looking towards the sky and God (to ask when) will we get all those decisions and recover that amount. Every morning I pray to God," said Kumar.
SBI has exposure of ₹1.13 trillion to 453 accounts in the NCLT, of which ₹59,000 crore is classified as non-performing. The remainder, ₹54,809 crore, has been put in advance under collection account (AUCA).
Moreover, another 123 accounts have been referred to the NCLT, but are yet to be admitted. The bank has either signed or is likely to sign inter-creditor agreements for 18 bad loans and 20 standard loans.
On the slowdown in the auto sector and reports of tightening lending norms for auto dealers, Kumar said SBI is very supportive of the sector and is not panicking. In these circumstances it does not help that you squeeze everything, he said. The bank has an exposure of ₹11,500 crore to auto dealers.
SBI’s total deposits rose 7.32% y-o-y to ₹29.48 trillion and its total loans (including foreign advances) rose 12.47% y-o-y to ₹22.38 trillion. Its capital adequacy ratio under Basel III guidelines rose 6 basis points y-o-y to 12.89%.
“While we were not ruling out volatility in corporate slippages, higher slippages across segments (including retail) remains a concern. Nonetheless, SBI’s strong liability franchise and better capital position differentiate it from other public sector peers," said a report by Reliance Securities.
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