Mumbai: State Bank of India’s (SBI’s) fiscal fourth-quarter net profit more than doubled, beating analysts’ estimates, as asset quality at the nation’s largest lender improved and it set aside less money to cover bad loans.
The rate of fresh bad-loan additions has slowed, but the bank expects provisioning to remain elevated in the current fiscal year as well.
Net profit in the March quarter jumped 122.7% to Rs2,814.8 crore. A Bloomberg poll of 20 analysts had expected the bank to post a net profit of Rs2,791 crore.
“Asset quality and loan growth positively surprised,” Siddharth Purohit, an analyst at Angel Broking Pvt. Ltd, told Bloomberg. “The earnings trajectory seems to be turning after a very rough patch.”
Gross bad loans rose 14.4% from a year ago to Rs1.12 trillion at the end of March. The bank had reported bad loans of Rs1.08 trillion three months earlier. Gross non-performing assets made up 6.9% of SBI’s loan book at the end of March, compared with 7.23% three months ago.
The bank had slippages, or fresh additions to bad loans, of Rs9,755 crore in the three months ended March, compared with Rs10,185 crore in the December quarter.
The slippage rate “appears to be slowing”, said Arundhati Bhattacharya, SBI’s chairman. The so-called watchlist of loans being closely monitored by the lender has shrunk to 1.6% of the corporate loan book compared with 2.3% three months earlier, she said.
The slower rate of bad loan additions meant that SBI had to set aside Rs11,740 crore as provisions, down 10.9% from a year ago.
Bhattacharya said the bank is carrying Rs5,910 crore as excess provision on standard loans—where the lender is anticipating some weakness—and Rs1,149 crore as a counter-cyclical provision buffer (capital reserves that banks need to build in good times; these are used only in times of economic or system-wide downturns.) Thus, SBI also had a provision coverage ratio of 65.95%, second only to Bank of Baroda among larger state-owned banks.
Despite these excess provisions, Bhattacharya said there’s going to be a “little more pain in the near term”. She expects credit costs (percentage of provisioning against the total advances) to remain “slightly elevated” in the current year as stressed asset resolution accelerates. Earlier this month, the government empowered the Reserve Bank of India to directly intervene in specific cases and resolve the Rs9.6 trillion of stressed loans in the Indian banking system.
Moreover, SBI’s stressed asset numbers will also worsen a bit when those of its five associate banks are consolidated with it. SBI merged with the five associates and Bharatiya Mahila Bank on 1 April.
“The trend of write-offs will continue for next few quarters and this can also be partly ascertained from movement in specific provision cover, which has been somewhat flat for SBI. The impact of associate banks will be negative, but more so if the loan book growth remains low” said Saswata Guha, director, Fitch Ratings.
In the March quarter, the bank’s net interest income, or the core income a bank earns by giving loans, rose 17.33% to Rs18,070.72 crore. Non-interest income declined 2.4%.
SBI will look to sell some of its strategic investments, according to Bhattacharya. She said SBI Life Insurance Co. Ltd will get listed through an initial public offering of shares this year, and that the bank will offer to sell some of its stake if UTI Asset Management also seeks a listing.
The bank’s board has already given its nod to SBI raising its stake in its credit card ventures to 74%. For this the bank has budgeted for an expenditure of Rs1,600 crore, according to Dinesh Khara, SBI’s managing director for subsidiaries. The transactions are expected to be concluded by September, he added.
Shares of SBI gained 1.72% to close at Rs 308.15 on Friday on the BSE, while the benchmark index, Sensex gained 0.1% to close at 30,464.92 points.