SBI posts record profit on lower provisions, strong other income

India’s largest lender State Bank of India (SBI) on Friday reported a net profit of ₹16,884 crore for the three months through June, more than double of last year, led by a surge in other income and lower provisions to cover bad loans.

For the state-owned bank, the June quarter profit was its highest ever, beating the Bloomberg estimate of ₹15,032 crore.

The substantial annual increase in other income was on a low base, a result of mark-to-market (MTM) loss in Q1 of FY23. Its net interest income— the difference between interest earned and expended— rose 25% to ₹38,905 crore.

The bank’s domestic net interest margin (NIM), a key indicator of profitability, however, contracted 37 basis points (bps) sequentially but showed an improvement of 24 bps from the previous year to 3.47%.

Like its peers, SBI is also seeing the impact of its deposits repricing, an effect that kicks in with a lag. The bank’s cost of domestic deposits increased 56 bps sequentially to 4.55%.

“NIM is always dynamic because the yield on advances will keep on changing and the cost of deposits will also keep on changing,” said Dinesh Khara, chairman, SBI.

“We are very mindful that we should try to have a decent NIM, which also means we should not unnecessarily overprice our borrowers and should not underpay our depositors.”

While asset quality improved in Q1, with gross bad loans as a percentage of total loans declining 2 bps sequentially and 115 bps y-o-y, its fresh slippages rose sequentially. SBI reported fresh slippages of ₹7,659 crore in Q1 FY24, as against ₹3,185 crore in the March quarter and ₹9,740 crore in the June quarter last year.

The lender’s special mention accounts (SMA), an indicator of incipient stress, rose from ₹3,260 crore in the March quarter to ₹7,221 crore as on 30 June.

Of this, the bank has already regularized about ₹1,500 crore till the end of July.

Khara said there is no stress in corporate and retail segments, but some stress has originated from the small business and agriculture portfolio. The bank, Khara said, has already been able to course-correct these accounts to some extent.

“It is a function of the economy on ground and I would say that cash flow disruptions lead to some kind of impact on repayment timing. But more or less in terms of quality, it is much better,” he said.

SBI reported a 15% y-o-y growth in domestic advances. Including loans from foreign offices, the loan growth was 14% and the aggregate loan book stood at ₹33 trillion.

“The bank will be very selective in international loans. We may not grow as we would be growing in the domestic market, as the international markets are very choppy and we will be growing in those markets if at all we can take care of the quality of assets,” said Khara.

He added that the bank has set a target of 14-16% credit growth and a 13-14% deposit growth in 2023-24.

SBI’s corporate loans grew at 12.4% and retail loans were up 16.5% in the three months through June.

The bank has a pipeline of about ₹ 3.5 trillion in corporate working capital and term loans, which will aid credit growth in the coming months.

Khara also mentioned that the bank has seen corporate credit demand from manufacturing, road and infrastructure, and renewable energy companies, among others.

“We will be growing everywhere. When it comes to corporates, we are open to all kinds of opportunities, maybe renewable, services, infrastructure, but it should be in our risk appetite,” said Khara.

Shares of SBI closed at ₹573.25 on the BSE on Friday, 2.9% below their previous close.