The worst might be over for State Bank of India, the country’s largest lender, on asset quality issues.
According to broking firm Goldman Sachs, which had a meeting with divisional heads of SBI in the first week of this month, the slippages are likely to stabilise or fall. And, net non-performing assets might actually fall by the end of March to 2–2.5 per cent as compared to 2.4 per cent in September-end.
Growth, however, is likely to emerge as an issue for the lender in the next financial year, SBI indicated to the analysts. “The management indicated that NPLs (non-performing loans) are near a peak but growth will be a bigger challenge in FY14,” Goldman said in a note. The brokerage maintained a neutral rating for SBI.
Improving asset quality might also prompt the lender to increase its provision cover and also prepare for a pay rise.
“While NPL may remain elevated in the near term, we think a decline would be positive for SBI, as it would reduce stress on the balance sheet, which in turn would lead to an improvement in profitability,” it said.
On growth, demand for large corporate loans are still not there and the lender is not focusing on the mid-corporate segment. Growth is expected to come from home and automobile loans. Mortgages will be a key driver in the current financial year, with 25-30 per cent growth expected. SBI has seen home loan approvals increasing to Rs 150 crore a day from Rs 65 crore about two months earlier. The number of applications it received doubled in the past couple of months.
Automobile loans, which grew 28 per cent in the first half of the financial year, is expected to continue the momentum.
Growth in retail assets comes on the back of lower lending rates, improved processes and switchover of customers from other banks to SBI. “The bank has reduced its loan processing time to two to three days for projects already approved, as this requires only KYC (know your customer) checks. In contrast, the bank requires around 10 days processing time when both project and KYC checks require approval. Previously, processing took as long as 20-30 days,” the note said.
Bad assets from the home loan segment for SBI is, however, higher than with housing finance companies, Goldman Sachs said. This was due to smaller value loans, constituting 65 per cent of the home loan book.
The small and medium enterprises sector, which has been seen as contributing stress to SBI, will remain a key area. The SME loan portfolio grew 13.3 per cent in April-September and the bank indicated it was seeing growth in the food processing, hospitality, auto ancillary and auto component sectors.
“The bank has also tightened its lending standards to reduce stress and has been insisting on an audited balance sheet from SMEs to provide enhancements,” the report said.