State Bank of In­dia’s profit drop am­pli­fies bank gloom

The Pak Banker - - COMPANIES/BOSS -

State Bank of In­dia's third-quar­ter net profit plunged 62%, as the na­tion's largest len­der set aside more money to cover bad loans amid deep­en­ing gloom over the health of pub­lic sec­tor banks.

SBI's profit fell to Rs.1,115 crore in the three months ended 31 De­cem­ber from Rs.2,910 crore a year ago. On a se­quen­tial ba­sis, profit fell 71% from Rs.3,879 crore in the pre­ced­ing quar­ter. The profit fell far short of ex­pec­ta­tions. The bank had been ex­pected to post Rs.3,300 crore of net in­come, based on a Bloomberg poll of an­a­lysts. In­vestors ham­mered SBI shares, which closed 2.99% down at Rs.154.20, on a day the BSE Sen­sex de­clined 3.4% to 22,951.83 points.

SBI, which warned that more pain is likely, is the lat­est in a string of govern­ment-con­trolled lenders to re­port dis­mal third-quar­ter earn­ings-the re­sult of a Re­serve Bank of In­dia (RBI) di­rec­tive to banks to clas­sify vis­i­bly stressed as­sets as non-per­form­ing as­sets (NPAs) and set aside money to cover the risk of de­fault.

The im­pact of the di­rec­tive, which fol­lowed an as­set qual­ity re­view by RBI, on the earn­ings of SBI and other banks shows that lenders have been sit­ting on a pile of stressed as­sets that they have avoided rec­og­niz­ing as risky un­til now.

For 30 of the 39 listed banks that have re­ported third-quar­ter earn­ings so far, gross NPAs have risen 26% be­tween the Septem­ber and the De­cem­ber quar­ters; pro­vi­sions have surged 74% and ag­gre­gate net profit has dropped 42%.

At SBI, loans worth Rs.20,692 crore slipped into the NPA cat­e­gory dur­ing the De­cem­ber quar­ter, more than triple the Rs.5,875 crore that turned bad in the Septem­ber quar­ter. This pushed up SBI's gross NPA ra­tio, as a pro­por­tion of all loans, to 5.1% from 4.15% at the end of the Septem­ber quar­ter.

To man­age th­ese bad loans, the bank set aside Rs.7,645 crore in the quar­ter, of which about Rs.4,300 crore was used to pro­vide for as­sets that turned bad un­der the pa­ram­e­ters spec­i­fied by the RBI's as­set qual­ity re­view.

Af­ter the in­creased pro­vi­sion­ing, net NPA ra­tio for De­cem­ber quar­ter stood at 2.89% of to­tal as­sets, in­creas­ing from 2.14% in the Septem­ber quar­ter.

There may be more pain to come, warned Arundhati Bhat­tacharya, chair of SBI. "We may see a sim­i­lar amount of pro­vi­sion­ing in the next quar­ter (Jan­uaryMarch). There are ac­counts that may have been clas­si­fied as NPAs in other banks but not by us yet. So, th­ese could hap­pen in the next quar­ter," said Bhat­tacharya.

In ab­so­lute terms, gross NPAs for the third quar­ter rose 28% to Rs. 72,791 crore from Rs. 56,834 crore in the se­cond quar­ter. Ac­cord­ing to Bhat­tacharya, one rea­son th­ese ac­counts had to be clas­si­fied as NPAs was that the loan re­cov­ery process takes too long. Based on SBI's ex­pe­ri­ence, res­o­lu­tion through the debt re­cov­ery tri­bunals (DRTs) some­times takes as long as 60 months, she said.

But clas­si­fy­ing an ac­count as an NPA does not im­ply that re­cov­ery ef­forts will stop.

"A lot of th­ese ac­counts which have slipped are chunky, large ac­counts which can be re­cov­ered. Just be­cause we have clas­si­fied them as NPAs and pro­vided for them, does not mean that we will stop our ef­forts to re­cover," said Bhat­tacharya.

A large part of the slip­pages (new loans turn­ing bad) dur­ing the quar­ter were from the bank's large cor­po­rate loan book, which con­trib­uted 11.2% of its gross NPAs, com­pared with only 1% in the pre­vi­ous quar­ter.

Of the Rs.20,692 crore in loans that slipped into the NPA cat­e­gory in the third quar­ter, about Rs.14,722 crore worth of loans were re­clas­si­fied fol­low­ing the reg­u­la­tor's re­view, said the bank.

"Ear­lier, we were ex­pect­ing slip­pages to show flat growth on quar­ter-on­quar­ter ba­sis. Closer to the re­sults we had re­vised our ex­pec­ta­tions to a higher num­ber than Septem­ber," said Ravi Shenoy, as­sis­tant vice- pres­i­dent of mid­caps re­search at Moti­lal Oswal Se­cu­ri­ties Ltd. "How­ever, Rs.20,000 crore was clearly a neg­a­tive sur­prise. To­day's drop in share price would have built in all th­ese sur­prises, and we are not ex­pect­ing too much of a neg­a­tive im­pact on the stock af­ter this," he said.

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