‘Happy Year’ for SBI despite record $1b loss

Chairman Kumar has predicted earnings will start to improve in the year through March 2019

State Bank of India, the country’s largest lender by assets, joined its private peers in shrugging off losses as investors believe the lenders have finally got a handle on bad loans.

SBI’s shares surged to a six-week high after it reported a record loss yesterday, weighed down by a doubling in provisions for soured debt. A similar contrarian market reaction was seen after No. 2 private lender ICICI Bank Ltd. and smaller rival Axis Bank Ltd. reported poorer-thanexpected earnings.

“The fact that State Bank has booked the losses like Axis Bank is heartening for investors,” Gopal Sharma, head of institutional sales at Inventure Growth & Securities Ltd., said by phone. “Also, generation of bad loans seems to be more or less contained for now.”

Encouraging predictions

Chairman Rajnish Kumar has predicted earnings will start to improve in the year through March 2019, buoyed by loan recoveries under a revamped bankruptcy law. Optimism is high following the biggest asset sale under India’s new insolvency code, which was completed last week.

“Last year was one of despair, this year is of hope and the one ending March 2020 will be one of happiness,” Kumar said at a subsequent briefing. “We have already taken a hit for all asset quality related issues and within next two years gross bad loan ratio will fall below 6 per cent.”

Gross bad loans were 10.91 per cent of total lending in the quarter ended March 31, 2018, rising from 10.35 per cent the previous quarter. SBI swung to a loss of Rs77.2 billion (Dh4.04 billion; $1.1 billion) in the period from a profit of Rs28.1 billion a year earlier. That compares with a loss of Rs17.3 billion predicted by the average of 14 estimates compiled by Bloomberg.

SBI shares rose about 4 per cent to Rs253.90 in Mumbai yesterday, the highest since April 11 and paring this year’s drop to 18 per cent. The broader Bankex gauge has gained 0.3 per cent this year.

ICICI Bank last month said income halved in the January-March quarter and guided that its net bad-loan ratio will narrow to about a quarter of the current level over the next two years. Axis Bank reported its first-ever loss and outgoing Chief Executive Officer Shikha Sharma said recognition of bad loans is “nearly complete.” SBI’s Kumar said the year to March 2020 will be “a happy year on all performance metrics.”

“Hitting rock bottom is the best thing that can happen sometimes,” said Kranthi Bathini, director of Mumbai-based financial advisory company Wealth Mills Securities Pvt. “Investors believe that it just can’t get worse from here for SBI.”