SBI surprises with results for Q1, share price jumps

There will be some pressure on NIM because last quarter we had created about R45,000 crore of NPAs and we do not earn on those assets.

STATE Bank of India (SBI) on Friday reported a better-than-expected set of numbers for the three months to June. Net profit came in at R2,521 crore, down 32% year-on-year on the back of higher loan loss provisions that nearly doubled y-o-y to R6,340 crore.

The SBI stock soared 9.14% on the BSE in intraday trade before ending at

R243.20, up 7.16%. So far in 2016, the stock has outperformed the Sensex, gaining 8.38% against a 7.8% rise in the Sensex.

India’s largest lender reported a healthy growth in operating profit to R11,054 crore, up 20% y-o-y, but asset quality deteriorated marginally with gross non-performing assets (GNPAs) as a share of gross advances rising 44 basis points sequentially to 6.94%. The net NPA ratio also grew by 24 basis points sequentially to 4.05%. The largest chunk of NPAs came from the mid-corporate segment, which reported a gross NPA ratio of 19.59%, followed by large corporates at 7.07%.

Chairman Arundhati Bhattacharya hinted the bank’s net interest margin (NIM) could be under pressure. “There will be some pressure on NIM because last quarter we had created about

R45,000 crore of NPAs and we do not earn on those assets,” Bhattacharya explained.

Net interest income — the difference between interest earned and interest expended — rose 4.22% y-o-y to

R14,312 crore and its NIM — a key measure of profitability — fell 20 basis points y-o-y.

Bhattacharya said the lender would stay with a “watch list” of R31,000 crore, adding that these accounts needed to be closely monitored. Bhattacharya sounded optimistic the stress would ease in coming quarters, saying the the kind of spike seen in the June quarter was unlikely to be repeated.

“Over a period of time this will normalise but I would not put it beyond next three quarters as resolution is also picking up,” she said. Of total slippages of

R8,790 crore into bad loan category, R2,947 crore originated from the watch list. “The last time we had not included the international banking group numbers in the watch list but we have realised here are Indian assets which have a foreign leg and have now included those,” Bhattacharya said.

In the March quarter, the bank had created a watch list of accounts worth R31,352 crore and expected 70% of it to slip into non-performing category in a worst-case scenario. Recoveries in Q1 FY17 were at R1,647 crore and the bank also upgraded loans worth R1,169 crore from nonperfor ming to standard.

SBI’s capital adequacy ratio rose 201 bps y-o-y to 14.01% in Q1FY17 and one of the major contributors to growth was revaluation of real estate assets worth

R31,965 crore, of which R14,384 crore could be used. “From the revaluation of reserves from fixed assets, 45% has been considered for capital. So it has added around 72 bps to the capital,” she said.

ARUNDHATI BHATTACHARYA SBI chairman