SBI Q4 pre-tax profit jumps tenfold on one-time gains

State Bank of India (SBI), the country’s largest lender, posted an over tenfold rise in profit before tax (PBT) to ~4,970 crore for the quarter ended March 2020 (Q4FY20). The jump was mainly due to a decline in provisions and contingencies, and a one-time gain of ~2,731 crore arising from the sale of some stake in subsidiary SBI Cards & Payment Services. The lender had posted a PBT of ~431.20 crore in Q4FY19. While the performance was lower than expectations, the positive commentary by the management helped the SBI stock close 7.9 per cent higher at ~187.8 per share on the BSE. The lender stating that about 20 per cent of its term-loan customer base had opted for moratorium also improved sentiment. SBI’S net profit in the quarter was ~3,581 crore, as against ~838 crore a year ago. According to a Bloomberg poll, analysts were estimating a PBT of ~7,496 crore and net profit of ~6,170 crore.

For the whole of FY20, SBI’S net profit rose to ~14,888 crore, up from ~862 crore in FY19, while PBT rose to ~25,063 crore, up from ~1,608 crore in the previous year. Apart from the stake sale in SBI Cards, the earnings for FY20 were also aided by ~3,484crore profit earned from selling some stake in another subsidiary, SBI Life Insurance Company, in the September 2019 quarter. On an annual basis, both PBT and net profit are the highest ever the lender has reported. The previous net profit record figure was ~14,105 crore in 2012-13.

Its net interest income (NII) shrank by 0.81 per cent in Q4 to ~22,767 crore from ~22,954 crore the previous year. NII was down partly because of the clearing of stressed assets in the agriculture loan book, which led to a reversal of some income, SBI Chairman Rajnish Kumar said.

Other income, comprising of fees and commissions, stood at ~13,346 crore in Q4FY20, up from ~12,685 crore the previous year.

Referring to provisions for bad loans, Kumar said the bank had focused on recoveries, and this meant a lesser amount had to be set aside for slippage. Provisions (including for non-performing assets or NPAS) and contingencies declined to ~13,495.08 crore in Q4FY20 from ~16,501.89 crore in Q4FY19. Provision coverage ratio (PCR) improved to 83.62 per cent at end of March 2020, up from 78.73 per cent in March 2019. The asset quality of the bank also improved during the fourth quarter. The gross NPAS (GNPAS) declined to 6.15 per cent in Q4FY20, from 7.53 per cent in Q4FY19. The GNPAS were 6.94 per cent in Q3FY20. Net NPAS stood at 2.23 per cent in March 2020, down from 3.01 per cent in March 2019.

Asked about the risk of higher defaults and stress, Kumar said the bank is in a good position to deal with the adverse impact of economic disruption. The retail portfolio was robust with most loans given to those working with government and government-owned entities. The slippage ratio is unlikely to be more than 2 per cent, he said. However, the bank will wait for another three months to make a better assessment. The slippage ratio was 2.16 per cent in FY20.

Speaking about the impact of the Covid-19 pandemic on operations, Kumar said it has resulted in a decline in economic activity and increase in volatility in financial markets. The situation continues to be uncertain and major challenges would arise from extended working capital cycle and waning cash flows, he said.

The bank has made a 15 per cent provision of ~938 crore for Covid-19 impact, against the outstanding portfolio of ~6,250 crore, which was standard at end of February 2020. These loans would have slipped into NPA category by March without the Reserve Bank of India providing debt servicing relief. SBI also made ~234 crore as additional provision for these loans as a similar amount has been reckoned in the operating profit. Enhanced focus on digital medium, cost reduction, and employee productivity are expected to help SBI improve business and profitability. As on March 31, 2020, SBI’S deposits rose by 11.34 per cent to ~32.41 trillion. Interest rates on deposits are expected to be stable at current levels for some time. The future trend would depend on policy rate action, Kumar said.

Advances rose by 5.64 per cent to ~24.22 trillion in FY20, of this, retail loans rose by 15.4 per cent to ~7.47 trillion. The lender expects loan book to grow by 7-8 per cent in FY21. The Capital Adequacy Ratio (CAR) stood at 13.06 per cent as on March 31, 2020, with tier-i at 11 per cent. The bank holds capital above the regulatory requirements. It does not intend to approach the government or market to raise capital for now.