State Bank of India, the country’s largest lender, reported a 137 per cent year-on-year increase in its net profit to Rs 3,752 crore for the quarter ended June 30 due to lower base, but a sharp rise in bad loans disappointed investors.
The stock closed 4.3 per cent lower on Friday than its previous close while the benchmark index remained flat.
The bank saw fresh slippages of Rs 10,844 crore in the quarter, while recoveries and upgradation was only Rs 3,283 crore. Its gross non-performing assets (NPAs) rose to all-time high of Rs 47,156 crore as compared to Rs 39,676 crore in March-end. The GNPA ratio, as on June-end, was 4.99 per cent of gross advances.
“While we are able to contain slippages from large corporates, loans to mid-corporates and small and medium enterprises (SMEs) proved to be our nemesis,” said Pratip Chaudhuri, chairman, in the post-earnings press conference.
NPA from mid-corporates was Rs 16,579 crore, while SMEs contributed Rs 13,424 crore. Chaudhuri said there was also pressure on asset quality from the farm sector, as farmers did not renew their cash credit accounts due to the poor monsoon. When the monsoon picked up and farmers started renewing loans, those accounts would be upgraded.
The bank’s management says loans to three big corporate accounts – in power, pharmaceuticals, and construction -- were primarily responsible for the sharp rise in NPAs. “We expect at least two of them will become standard assets over the next two quarters, as only some environment clearances are awaited. On a conservative estimate, we expect Rs 2,000 crore worth of loans will be upgraded in the next six months,” said a senior SBI official.
SBI restructured Rs 563 crore of loans in the first quarter, while it made a provisioning of close to Rs 8,000 crore, flat as compared to the same period last year. About Rs 3,000 crore worth of loans are currently under discussion for restructuring. Going ahead, the bank sees gross NPAs touching Rs 50,000 crore, though the GNPA ratio is expected to fall to 4.75 per cent.
Growth is expected to come from the retail segment this financial year, as corporate loan growth might come down. “We expected retail loan growth to compensate the slowdown in corporate loans,” Chaudhuri said, while adding the recent cut in home and automobile interest rates will boost demand. SBI expects a 16-18 per cent loan growth in the current financial year.
The slowdown in loan growth has made fee income from loan processing come down, resulting in a decline, albeit marginally, of the bank’s non-interest income.
Net interest margins (NIMs), though these came down during the reporting period, are expected to improve. “The NIM, which was 3.62 per cent last year, has come down slightly. But this is more due to separation of the pension fund from the bank. So, nothing more is likely to affect our NIM. We still maintain our guidance (expectation) of 3.75 per cent for the weighted average of the NIM for the bank as a whole,” said an official. During the period, SBI reported NIM of 3.86 per cent from its domestic operations.