SBI net profit rises 25% to Rs 3,880 cr

Growth helped by non-interest income and asset quality; chairman hopeful of loan demand rise

State Bank of India, the country’s largest lender, had a 25 per cent increase in net profit for the July-September quarter from the same period a year before, to Rs 3,879 crore.

This was helped by a three-fold rise in treasury gains, coupled with a onetime income item by repatriating profit from international operations. The figure was higher than the Bloomberg estimate.

A fall in bond yields helped it to book about Rs 1,000 crore in profit. Total profit from sale of investments was Rs 1,500 crore, as compared to Rs 500 crore in the same period last year. It repatriated profit of Rs 485 crore from global operations. Recovery from written-off accounts was Rs 627 crore, a 35 per cent growth over a year.

“The repatriation of profit is in line with what the government has been telling public sector banks, to sell or get income from non-core assets,” said Arundhati Bhattacharya, chairman, in a media briefing. Probably the first time in recent history, she said, that SBI had done so.

“We have used the profit to boost out provision coverage ratio,” she added. This ratio improved to 70.48 per cent, from 63.56 per cent a year before. This is also probably the first time SBI is above the 70 per cent mark here, a threshold the market perceives as a benchmark, though there is no regulatory requirement.

Loan loss coverage also got a boost. Gross non-performing assets (NPAs) were Rs 56,834 crore at end-September, from Rs 60,712 crore  a year before. As a percentage of gross advances, gross NPAs were 4.15 per cent, from 4.89 per cent a year before. Asset quality also improved from the earlier quarter.

“Overall, I think we are beginning to see the end of this entire cycle (of rising stress on asset quality) and I am much more confident about the quality of assets, going forward,” said Bhattacharya.

Profitability, was however, hurt by doubling of the income tax provisioning, Rs 2,026 crore, year on year. In the same quarter of 2014-15, the lender got an I-T benefit for pension provisions, absent this year.

Net interest income growth was only 7.4 per cent, to Rs 13,275 crore, as the yield on advances showed flat growth, while there was only a five basis points reduction in the cost of funds. This is mainly because tepid loan growth, 10 per cent higher over a year, and reduction in the bank's base rate (BR), the benchmark to which all loan rates are linked.

The BR cut will also exert pressure on the net interest margin, almost flat sequentially at 3.01 per cent.

“We will try to hold on to these levels (of NIM). For these, we have to deploy more resources in loans, rather than in government bonds,” said the chief. Lack of loan demand amid a slowing economy has made banks put resources in these bonds; SBI has invested almost six percentage points more in government bonds than what is mandated.

Bhattacharya is hopeful that economic activity is picking up, particularly in the roads sector. The bank believes it can achieve the 13-14 per cent loan growth target in FY16 that it had set at the start of the financial year.