MUMBAI: State Bank of India (SBI) has given enough reasons to cheer in its first quarter performance. Not only has India’s largest lender managed to bring down its bad loans, its outlook on them is not alarming as expected.
SBI reported a 81% year-on-year jump in its net profit and loads of help came from the stake sale in its life insurance subsidiary. That does not negate the fact that its core income grew at an impressive 16%. While the 7.6% loan growth may seem low, it is no chump change on a balance sheet size of ₹41.17 trillion.
Keeping in trend with peers, SBI’s moratorium levels also declined sharply to 9.5% as of June from about 30% three months ago. Chairman Rajnish Kumar said moratorium does not necessarily suppress slippage ratios and that the bank has not witnessed any big behaviour changes among borrowers. This outlook should comfort investors at a time when most banks have sounded conservative on asset quality.
While SBI is more optimistic on asset quality than its peers, it has ensured enough insurance against risks. As of June end, the bank held ₹3008 crores as specific provisions towards covid-19 risks. Total provisions rose 36% year-on-year, a sign that the lender has increased provisions on all fronts. This increase came even as its bad loan ratios declined. Gross bad loans formed 5.44% of the total book and provision coverage ratio rose to 86%, one of the highest in the industry.
But SBI has its Achilles heel and that is loans to small businesses. True, the share of small and medium enterprises (MSME) is just 14% in the total book. But Kumar has sounded cautious on this portfolio. “We have to watch the SME book and the lower end of the mid-corporate segment requires the maximum alertness," he said in a virtual press meet.
SBI has sounded sanguine on growth outlook as well. It expects its loan growth to be 8% for FY21 and Kumar added this has the potential to increase as well. He expects a pick-up in credit disbursements in the second half of FY21. SBI has a project sanction pipeline of more than ₹1 trillion, he said. Indeed, even as covid-19 pandemic rages, SBI has been able to grow its loan book.
But the growth in retail loans has been wanting for obvious reasons. The pandemic has made Indians cautious and housing has bore the brunt of this. Home loan disbursements were 9% lower than last year. Even so, there has been a remarkable improvement in disbursals compared with the lockdown period of March-May. The biggest jump was on personal loans. Unsecured personal loans grew 41% in the month of June as compared to a 72% fall in April.
With the economy unlocking in stages with restrictions largely being regional, SBI is confident of a turnaround. The over 2% increase in the stock shows that investors too are getting convinced of this.