SBI surprises Street with dip in bad loans

Higher provisioning drags net profit down by 7.8% to Rs 3,040.74 crore

State Bank of India (SBI), the country’s largest lender, sprung a pleasant surprise by reporting a drop in bad loans even as higher provisioning dragged its net profit down 7.8 per cent in the fourth quarter ended March 2014.

SBI said better risk management resulted in gross non-performing loans as a percentage of total loans falling 78 basis points sequentially to 4.95 per cent. Net NPA dropped 67 basis points. Sale of bad loans of Rs 3,000 crore also helped the lender reduce its NPAs. The stock ended at its highest level in three years.

The bank reported a net profit of Rs 3,040.74 crore in the quarter against Rs 3,299.22 crore in the same period of the previous financial year. “In the last quarter, higher provisions on loan loss on stressed assets and income tax led to the fall in net profit. We also had to make a provision of nearly Rs 1,500 crore on RBI norms on infrastructure finance,” Arundhati Bhattacharya, SBI chairman, said.

In the last quarter, the bank’s total provisions increased by nearly 70 per cent over the same period last year to Rs 7,587 crore. Of this, the loan loss provision increased by 48 per cent to nearly Rs 5,884 crore, while income tax provisions increased by nearly 504 per cent to Rs 1,696 crore. Also, the cost of funds for the bank remained almost flat at 6.27 per cent as of March 2014, as against 6.25 per cent in March 2013. SBI said it had put in place a revamped stress management system, and would tweak portfolios such as small and medium accounts to minimise NPAs. The gross NPA came down from 5.56 per cent in the quarter ended June 2013 to 4.95 per cent in the quarter ended March 2014, while net NPA came down from 3.24 per cent to 2.57 per cent in the same period.

However, compared to March 2013, both gross and net NPA of the bank remained high.

In absolute terms, gross NPA was Rs 61,605.35 crore, lower than Rs 67,799.33 crore as on December 31, 2013 and higher than Rs 51,189.39 crore as on March 31, 2013.

The bank could also arrest fresh slippages to Rs 7,947 crore from nearly Rs 11,438 crore in the year-ago period. SBI’s provision coverage ratio stood at 62.86 per cent as on March 31, 2014.

Vaibhav Agarwal, vice-president (research), banking, Angel Broking, said the improvement in asset quality was more than expected. Sustaining it would depend on the reform measures the new government would set in motion, he added.

Bhattacharya said, “We have de-grown on the SME portfolio, which has come down from 17 per cent to 14 per cent of the total portfolio. We will be consolidating the SME portfolio and revamp the product bouquet.”

In the last quarter, while large corporate advances increased by 38 per cent on a year-on-year basis, SME advances fell by 2.37 per cent over the same period. Gross advances of the bank increased by 15.55 per cent, while deposits grew by 15.94 per cent year-on-year.