SBI: Asset quality improves in Q4, operating income up 17%

Profit growth supported by the special dispensation by RBI on sale to ARC, usage of counter cycle buffer

State Bank of India (SBI), the country’s largest bank, reported strong operational numbers for the March quarter.

The bank’s operational and asset quality numbers were better than expected during the quarter. Even as loan book grew by eight per cent during the quarter, SBI’s net interest income (NII) grew 14 per cent year-on-year to Rs 14,711 crore, led by lower cost of funds. The bank’s profit growth got a boost from higher other income, which grew 19 per cent year-on-year (y-o-y) and 22 per cent quarter on quarter to Rs 8,515 crore. Operating profit grew 17 per cent y-o-y to Rs 12,409 crore. Like other banks, SBI too has gained from higher treasury gains and core fee income. The bank’s net profit grew 23 per cent y-o-y and 29 per cent sequentially to Rs 3740 crore.

The big surprise came on the asset quality front, as gross NPA ratio during the March quarter improved to 4.25 per cent from 4.90 per cent in the December quarter. Gross NPAs declined on an absolute basis by 8.5 per cent sequentially to Rs 56,730 crore. Slippages (incremental accretion of NPAs) during the quarter came in at Rs 4,769 crore against Rs 7,000 crore in the December quarter. Recoveries jumped to Rs 4,485 crore. However, recast loans were higher than expected at Rs 11,885 crore.

Analysts say that the bank has used special dispensation provided by RBI on sale to ARC to amortize the loss arising from sale of assets to asset recovery companies. As a result SBI has reported only Rs 620 crore of loss from sale to ARC in the profit and loss statement during FY15 and carried on Rs 2180 crore of unamortized loss. Carried forward loss will be amortized over next seven quarters. The bank has also used Rs 380 crore from counter cyclical buffer created in the past to provide for NPA in the March quarter. Reliance Securities believes other than a healthy growth in operating profit, bottomline was further supported by the special dispensation by RBI on sale to ARC and usages of counter cycle buffer.

Going forward, analysts believe that SBI may remain ahead of the pack (PSU banks) in terms of asset quality and operational performance. Explains Aalok Shah, analyst with Centrum Broking, “SBI’s asset quality is better than that of other PSU banks, reflected in the ratio of net NPAs to net worth ratio at 21.5 per cent against 30-35 per cent (average) for other PSU banks.” Also, slippages from the restructured portfolio were on the lower side for the bank when compared to its peers. With tier-I CAR /total CAR at 9.6 per cent /12 per cent too adds comfort, he adds.