1 min read.Updated: 22 Aug 2021, 12:26 PM ISTLivemint
The bank has cumulatively written off ₹1.5 trillion since FY18 and the improvement in asset quality has been sharper than most peers, including private sector banks
India’s largest lender State Bank of India (SBI) appears well positioned to report a strong uptick in earnings, led by normalization in credit cost. Improvement in core operating performance will further propel earnings growth, analysts said.
“SBI's focus on strengthening its balance sheet has enabled a sharp decline in gross non-performing assets (GNPAs) to ₹1.3 trillion in FY21 from ₹2.2 trillion in FY18. Gross NPAs declined by nearly 43% over the past three years, while provision coverage ratio (PCR) increased to 68% at present from 40% four years back," said a report by Motilal Oswal on 20 August.
The bank has cumulatively written off ₹1.5 trillion since FY18 and the improvement in asset quality has been sharper than most peers, including private sector banks.
“While the June quarter of FY22 saw a marginal increase, we believe that the balance sheet cleansing is largely complete, with the focus to shift to earnings recovery and pursuing growth. Controlled restructuring (0.8%) and special mention account book (0.5%) provides further comfort on asset quality and will drive a sustained reduction in credit cost," it said.
The bank’s advances under collection account (AUCA) book have increased to ₹1.72 trillion and is now significantly higher than the gross NPA pool, with historical recoveries in the 6-11% range, it said.
Over the past five years, the bank has recovered about ₹40,000 crore from the AUCA book. Analysts at Motilal Oswal expect recovery trends to continue as the Insolvency and Bankruptcy Code (IBC) process gathers pace after a long pause due to the covid-19 outbreak. Even prior to IBC, the bank reported a 9-11% historical recovery rate from its AUCA book.
“Despite a challenging Q1, the bank demonstrated a resilient performance, as fresh slippages stood at ₹15,670 crore. Although slippages were slightly elevated, led by the retail, and small and medium enterprise (SME) portfolio, the management clarified that slippages worth ₹ 4,800 crore had already been recovered or upgraded in July," it said.