NPAs set to increase at SBI

Bank not likely to gain from large recoveries and upgrades seen in March 2012 quarter

Non-performing loans for SBI are expected to increase going forward as the bank will not have the benefit of large recoveries and upgrades it witnessed in the March 2012 quarter. SBI management, while speaking at the Citi India Investor conference said that it is looking at asset quality improving in FY13.

On slippages the management is confident of containing it at the March 2012 quarter level. Its restructuring pipeline is around Rs 3500-4000 crore which will be undertaken over the next two quarters.

SBI managements said that it maintains its loan growth rate at 15-16% in FY13 and expects deposit rates to grow at the same rate. Slowdown is expected in infrastructure loan, which will be compensated by an increase in off-take in retail and agriculture loan portfolios.

SBI says that its net interest margins (NIMs) are expected to moderate by 10-15 basis points if interest rates fall relatively sharply, otherwise it would remain stable. Recent capital infusion and cuts in CRR (cash reserve ratio) should support NIMs going ahead.

The bank has assessed its total capital requirement at Rs 98,000 crore (for Basel III) over the next 6 years. In the next three years the requirement will be low and will start kicking in only with the application of the Capital conservation buffer from FY15 onwards.

Its international book is well hedged with nearly 80% of its borrowers having a currency hedge either naturally or explicitly. The remaining are with large corporate where, SBI says, the risks of defaults are much lower. However, growth in lending is expected to slow down as lending rates are expected to remain high.