5 takeaways from SBI's Q4 results

While there is nothing exciting in the results, investors have given a thumbs up to the stock as they believe that the worst is over for the largest bank in the country

The country's largest lender, State Bank of India may have reported a 66% drop in net profit at Rs 1263 cr in Q4, but investors have welcomed the numbers with a 6% hike in the stock. 

So is the worst discounted by the markets? We look at five key takeaways from SBI’s results.

1) Poor quality of assets continues to hamper SBI. Its profit has fallen by 66 per cent but more importantly the bank’s provisioning has more than doubled. Against a provisioning of Rs 4,985.83 crore in March 2015, the bank has decided to provide for Rs 12,139.17 crore of bad assets.

2) High level of toxic assets resulted in the company holding back on its advances. Unlike the private sector banks who continue to increase their exposure to retail while being cautious on their exposure to the corporate sector, SBI chose to hold back on its lending to both. Advances growth was 9.61 per cent against a deposit growth of 9.76 per cent. Despite the low growth, SBI has been the most aggressive of public sector banks in FY16 when it comes to lending. This explains the overall low credit growth in the banking sector.

3) Low credit growth is mainly on account of the poor health of its asset book. The bank recorded gross NPAs of 6.5 per cent as compared to 4.25 per cent in the same quarter last year and 5.10 per cent in the previous quarter. The disturbing feature of NPAs is the rising trend. Net NPAs have increased by 38.7 per cent at Rs 55,807 crore.

4) Even the accounts that were restructured are not performing well. SBI declared slippages of Rs 30,312 crore as compared to Rs 20,692 crore last year. The saving grace in the bank’s result is the high other income component which increased from Rs 8515.25 crore to Rs 10,695 crore and a tax write back. Against a tax outgo of Rs 2074.43 crore, the bank has shown a credit of Rs 245.96 crore. Forex gain of Rs 2,034 crore is included in the other income component.

5) The corporate loan book of SBI is a reason to worry. Against revenue of Rs 17,485.32 crore, the bank has shown a loss of Rs 8,555.81 crore from the segment. This follows a loss of Rs 4,519.19 crore in the previous quarter and a loss of Rs 1,209.54 crore in March 2015. Retail lending and treasury profits restored some respectability in the bank’s number. Yet it was too small given the overall book size of the bank. As a result Return on Asset ratio of SBI has fallen to as low as 0.23 per cent (annualised) in March 2016 quarter as compared to 0.76 per cent in the same quarter last year.

While there is nothing encouraging in the results, investors have given a thumbs up to  the stock as they believe that the worst is over for the largest bank in the country. In its results disclosure, SBI has said that it has implemented RBI direction with respect to Asset Quality Review, which means that most of the toxicity in the books has been purged.