SBI NET DOWN 38% IN Q2 ON HIGHER PROVISIONING

Share price gains 6%, as asset quality improves

A HFC WITH A LOAN BOOK OF ~1 LAKH CRORE GETS MARKET CAP OF ~1 LAKH CRORE, WHILE SBI'S HOME LOAN PORTFOLIO IS ~3 LAKH CRORE... MY (SBI'S) TOTAL MARKET CAP IS ~2.8 LAKH CRORE JUST BECAUSE OF CORPORATE NPA WHICH IS A SMALL PART OF MY BUSINESS” RAJNISH KUMAR SBI Chairman

State Bank of India’s (SBI’s) standalone net profit declined 37.9 per cent to ~1,581 crore in the second quarter (Q2) of FY18, from ~2,538 crore in the same period last year, due to higher provisioning.

Slippages were under control, as gross non-performing assets (GNPA) declined sequentially from ~188,068 crore to ~186,115 crore at the end of Q2FY18. GNPA stood at ~1,05,782 crore at the end of Q2 FY17. The stock market reacted positively to the improvement in asset quality. Share price gained 6.2 per cent to ~333.2 per share on the BSE.

SBI Chairman Rajnish Kumar said the robust growth in other incomes —fees, commission and treasury — helped boost bottom line. Standalone operating profit excluding exceptional item (part sale of SBI Life Insurance stake) grew 11.4 per cent yearon-year to ~14,563 crore. Net interest margin was up nine basis points sequentially to 2.59 per cent.

Standalone operating profit grew 30 per cent year- on-year to ~14,563 crore. To improve credit and financial profile, the bank increased quantum provisions for NPAs. The provisions for bad loans stood at ~16,715 crore in Q2 FY18, up from ~7,670 crore in the same quarter of FY17, which led to the fall in net profit. Kumar said with international reporting norms on the anvil, the bank was making provisions closer to expected losses (on bad loans) than actual loans. “We should be in a position to weather any storm in the future,” he added.

SBI had merged its erstwhile associate banks and Bharatiya Mahila Bank with itself from April 1, 2017. The bank said the historical data were arrived at by aggregating the audited numbers of the erstwhile standalone entities for comparison purposes. At the consolidated level, it reported a net profit of ~1,952 crore in Q2FY18 against a loss of ~116.65 crore a year ago.

Net interest income, the difference between interest earned and expenses, increased by 2.6 per cent from ~18,119 crore in Q2FY17 to ~18,586 crore in Q2FY18. Noninterest income, comprising treasury revenues, fees and commissions, grew by 58 per cent to ~16,016 crore.

The huge growth was driven by part sale of stake in SBI Life Insurance in a public offering. The fee income was LTP- Loss to Profit; Compiled by BS Research Bureau up by 6 per cent from ~5,054 crore. Provision Coverage Ratio (PCR) for bad loans increased from 60.79 per cent in Q1FY18 to 65.10 per cent in Q2FY18. This includes provisions made for written- off accounts. PCR stood at 58.57 per cent at the end of September 2017. As a percentage of total advances, net NPAs declined 54 basis points sequentially to 5.43 per cent. A year ago, net NPAs stood at 4.19 per cent of advances.

On the advances front, the bank continued to face challenges as muted demand for credit in the economy saw gross advances growing just 0.95 per cent y- o-y to ~18,92,440 crore at the end of September 2017.

Kumar does not expect credit growth to improve significantly in the second half of the current year. Credit Source: Company growth is likely to be in the region of 5-6 per cent for FY18, as corporate demand is likely to remain muted. The growth will be be around consumption (retail), bank executives said.

Retail advances grew by 13 per cent to ~5,04,777 crore in September 2017. Home loans grew by 12.7 per cent to ~2,90,450 crore as of September 2017.

Deposits grew by 10 per cent to ~26,23,180 crore as of September 2017.

Its capital adequacy ratio (CAR) stood at 13.56 per cent with tier-I of 10.96 per cent at the end of September 2017.

On capital raising plans, the SBI chief did not indicate specific steps to raise more capital but added that at present the capital position of the bank was strong and would like it to be stronger.