Analysts expect SBI to post ~20.76 bn Q4 loss

State Bank of India (SBI) is expected to report a ~20.76 billion loss for the March quarter when it announces its results on Tuesday, data from Bloomberg indicates.

This will be the second consecutive quarterly loss for the country's largest banker. SBI had posted a loss of ~24.16 billion in the December quarter, its first in nearly 19 years, as the Reserve Bank of India (RBI) asked the bank to reclassify its over ~230 billion loans as non-performing assets (NPAs).

Provisioning for depreciation of investments also affected the bank's bottom line. High slippages and mark-to-market (MTM) losses on investments in government bonds, due to elevated yields resulting in higher provisioning is expected to weigh on SBI's bottom line in the fourth quarter of 201718. Analysts, however, expect SBI to have utilised the RBI dispensation of spreading MTM provisioning, thereby containing the losses to some extent.

“The bank could use the reversal of the MTM provision to shore up overall provisions,” analysts at Axis Capital said in a preview report.

Similarly, writebacks of provisioning for cases being heard in the National Company Law Tribunal (NCLT) as well as the RBI’s relaxation in provisioning for these accounts from 50 per cent to 40 per cent will also be beneficial, if SBI chooses to make use of them. Otherwise, the losses are likely to be bigger than anticipated by the street.

As observed in other public sector banks that have announced their fourthquarter results so far, the RBI’s new NPA framework announced on February 12, has affected their profits.

SBI had a Rs 208.8 billion standard stressed asset pool in December, more than 1 per cent of its total advances. Gross NPAs, consequently, are likely to be higher at up to 11.5 per cent of gross advances, analysts estimate. Gross NPAs were 10.4 per cent of gross advances in the December quarter.

More slippages are also seen affecting the bank’s top line due to interest reversal. This along with muted loan growth — up 2 per cent year on year, down 1 per cent sequentially -- is likely to result in a 8-9 per cent yearon-year decline (sequentially flat) in net interest income (NII), or the gap between interest earned and interest expensed.

“The NII is expected to be sequentially flat, as interest reversals are expected to keep yields under pressure and loan growth remains sluggish,” analysts at Motilal Oswal Securities said in a preview report.

The SBI management’s guidance on asset quality, advance growth and NCLT cases are crucial aspects the street will be watching out for. Also, the bank’s exposure to the power sector and effect of new NPA guidelines are key things to track. The latter along with high bond yields is expected to weigh on SBI’s June quarter numbers as well.

For now, according to analysts, if the bank reiterates its earlier guidance of slippages settling around Rs 420 billion by 2018-19, it should be considered positive in light of recent developments.