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| SBI: Change in strategy paying | | Profitability has improved but asset quality concerns to remain |
| Malini Bhupta / Mumbai Feb 14, 2012, 00:13 IST |
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 State Bank of India's (SBI) decision to shift focus from balance sheet growth to profitability is paying off. Unlike many other state-owned banks, SBI has posted a robust growth in third quarter profits, which is ahead of the consensus estimates. While consensus estimates were expecting the bank to post a seven per cent y-o-y growth in net profit, the bank has actually clocked 15.4 per cent growth at Rs 3,263 crore in the December quarter.
The profitability has been driven primarily by improvement in margins. The bank has re-priced some assets and improved its credit-deposit ratio. This is also reflected in the net interest margin, which has expanded to 4.05 per cent in the quarter from 3.6 per cent, in the corresponding quarter last year. Dipen Shah, senior VP at Kotak Securities, says: “The improvement in net interest margin and improvement in domestic credit-deposit ratio from 77.2 per cent in FY11 to 78.6 per cent in Q3 FY12, have helped improve profitability.”
Despite posting a robust growth in net profit,SBI’s shares closed two per cent down on Monday. Analysts say the concern on slippages and non-performing loans will continue to plague the bank till the economy shows signs of mending. Along with healthy growth in profits, the bank’s bad loans are also growing at a steady clip. Gross non-performing assets in December stood at 4.6 per cent of total advances compared to 3.2 per cent in the corresponding period last year and 4.2 per cent in the September quarter. Analysts believe asset quality issues will persist. However, while loan loss provisioning on a y-o-y basis is up 84 per cent, on a sequential basis the figure has stayed stable.
Given that improvement in profitability has been offset by weak asset quality, analysts say capital infusion by the government would be a key positive. Vaibhav Agrawal of Angel Broking says asset quality concerns will start coming down as the economic outlook improves. Till then, the outlook on the stock will remain cautious.
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