SBI NET DOWN 20%, NPAs WORSEN
Farm debt waiver hits retail loan asset quality; loan demand expected to pick up later this year
State Bank of India’s standalone net profit for the April-June quarter of 2017-18, and the first after the merger of associate banks, dipped 20.3 per cent to ~2,005 crore from ~2,520 crore in April-June 2016. The asset quality of the retail loan book came under pressure as advances worth ~17,886 crore in this segment slipped into the category of NPAs.
State Bank of India’s stand-alone net profit for the April-June quarter (Q1) of 2017-18, and the first after the merger of associate banks, dipped by 20.3 per cent to ~2,005 crore from ~2,520 crore in April-June 2016.
However, the bank clarified that the results for Q1 FY18 included operations of the erstwhile banking subsidiaries and Bharatiya Mahila Bank (BMB), and the results are not comparable with June 2016 quarter numbers.
The bank said that the net profit would go up by 436 per cent from ~374 crore to ~2,006 crore if the June 2016 numbers were to include the erstwhile subsidiary banks and BMB.
Asset quality of the retail loan book came under pressure in April-June, as advances worth ~17,886 crore in this segment slipped into the category of nonperforming assets (NPAs). People held back repayment in anticipation of farm loan waiver, constraining follow-up for recoveries during transition for the merged entity and the end of forbearance on loans after demonetisation, chairman Arundhathi Bhattacharya said in a conference call with the media.
Reflecting market apprehension about retail loan quality, the stock closed at ~ 280, down 5.3 per cent over Thursday's close on the BSE; it was the biggest loser among Sensex stocks. Net interest income, the difference between interest earned and expenses, decreased by 3.5 per cent over a year before, to ~17,606 crore.
The net interest margin (NIM) dipped from 2.84 per cent a year before to 2.36 per cent. This reflects the effect of reduction in the Base Rate/Marginal Cost of Funds-based Lending Rate during the period. The SBI chief said NIM would improve by 10-15 basis points, on improved recoveries and upgrades. Also, pick-up in loan growth will give higher yield vis-à-vis investments.
Non-interest income was down by 8.6 per cent from Q1 of FY17, to ~8,006 crore in Q1FY18. But, the fee income, part of other income, increased from ~4,190 crore to ~4,870 crore, year-on-year growth of 16.2 per cent. Total provisioning declined by 26.3 per cent to ~9,869 crore, from ~13,388 crore in April-June 2016, helping to post a tidy rise in net profit. Gross NPAs rose to ~188,066 crore (9.97 per cent) in end-June from ~137,662 crore (7.4 per cent) in June 2016 for the merged entity.
The provisions for bad loans rose by 11.3 per cent year-on-year to ~12,215 crore. The provision coverage ratio was 60.8 per cent in end-June, from 59.9 per cent a year before, SBI said. SBI's total of dues from the 12 big bad loan accounts referred for the insolvency and resolution process by Reserve Bank of India (RBI) order for all banks is ~50,247 crore. The total provision held is ~19,943 crore. The incremental provision required on these accounts is ~ 8,571 crore in FY18, based on RBI guidelines.
These being old NPAs, the ageing related provision on these accounts would have been ~5,034 crore in FY18. The uncertainty is only for an additional ~3,500 crore. The exact provision we will have to make depends on resolution of the accounts, and the bank will be in a position to absorb this liability, Bhattacharya said.
Gross advances grew 1.5 per cent to ~18,86,666 crore at end-June. SBI expects loan demand to pick up in the third and fourth quarters; its expectation is six to eight per cent growth in FY18.
Deposits rose by 13.3 per cent to ~26,02,534 crore. The share of low cost current account and savings bank deposits was ~11,13,455 crore. The chairman said they were not contemplating a cut in deposit or lending rates at this point. The capital adequacy ratio was 13.31 per cent, with tier-I capital at 10.67 per cent at end-June.