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The country’s largest lender, State Bank of India (SBI), posted decent results in second quarter, with reported earnings beating the street’s estimates by a mile. A fall of around 22% year-on-year (y-o-y) in total provisions for bad loans led to a 52% jump in net profit to 4,574.16 crore, which exceeded the consensus estimate of 3,688.8 crore of Bloomberg analysts.

SBI shares rose more than 5% in early trade on Thursday.

SBI’s asset quality saw a modest improvement. Gross non-performing assets (NPAs) fell from 5.44% in the June quarter to 5.28%, while net NPAs fell from 1.86% to 1.59% in Q2.

The lender said its gross NPA would have been at 5.88% and net NPA at 2.08% if the bank had classified the loan accounts as NPA after 31 August, in accordance with the Reserve Bank of India’s norms. However, the Supreme Court had in its interim order dated 3 September, directed that the accounts that were not declared NPA till 31 August, shall not be declared NPA till further orders.

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On the mend

The loan book grew 6.02% y-o-y over the previous year to 23.83 trillion. The growth was primarily driven by the retail loan segment, which grew 14.6% y-o-y followed by agriculture and corporate loans.

Retail will be its major lever for growth, SBI’s management said in a post-earnings media briefing. Within retail loans, the bank sees good traction in home loans, which constitutes 23% of its domestic loan book. The average loan ticket-size in the home loan segment was 25-28 lakh, the management said. Further, the bank is also seeing good growth in the personal loans segment.

“On the corporate book, we do see some sanctions, but when it comes to availment, we are yet to see it. I think this is partly because of (lack of) demand. Hopefully, we will see growth in the coming quarters in the corporate books," the management said.

The public sector lender expects its domestic loan book’s growth to improve to 8-9% y-o-y in the next few quarters.

The improvement in the loan book was welcome, but the market will be tracking the bank’s slippages given the cautious commentary, according to analysts. SBI’s management spoke of higher slippages in the agriculture sector, which is contrary to what one would have expected, analysts said.

The management said fresh slippages were higher in the agriculture sector, followed by small and medium enterprises. However, corporate slippages have come down significantly.

In Q2FY21, slippages were down 69% y-o-y to 2,756 crore. However, SBI anticipates slippages to rise in the second half of the year.

Further, until October, SBI had received restructuring requests worth 6,495 crore. For that, SBI has made provisions of 650 crore in the quarter, the management said. It estimates this to rise to around 13,000 crore at the end of the December quarter, led by corporate and micro, small, and medium enterprises accounts.

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