Legacy shadow on SBI asset quality

The public lender's gross NPA went up to 6.50% in 2015-16 from 4.25% the previous year

As a shadow of its legacy, State Bank of India’s books may continue to see asset quality pressures because of non-fund exposures to businesses, said Chairman Arundhati Bhattacharya on Thursday.

On the sidelines of the annual general meeting of the bank, Bhattacharya told journalists that the asset quality of the bank had improved but there would be some persistent pain.

“In terms of asset quality, I did not say 2016-17 will be a lot better. In fact, I said there could be pains as well because the numbers we have taken are basically on the fund-based part but the non-fund based part also gets converted subsequent to classification,” Bhattacharya said.

The public lender’s gross Non-Performing Assets (NPAs) went up to 6.50 per cent in 2015-16 from 4.25 per cent the previous year, and net NPA rose to 3.81 per cent from 2.12 per cent.

Bhattacharya said the NPA numbers may have gone up but going forward, the quality of assets will be better. “You can’t see this right now as there is always a lag effect, there is a legacy effect. But as the legacy effect wears off, we will definitely see asset quality become much better,” she said.

The volume of non-performing assets went up after the Reserve Bank of India conducted Asset Quality Review in 2015-16. This led to a front loading of provisions giving strength to the balance sheet.

The SBI made provisions worth Rs 26, 984 crore in FY16.  Going forward, bank is expected to see positive impact from such exercise and provisions.

Referring to the merger of associate banks, Bhattacharya said SBI was working simultaneously on integrating five banks. The dates for the merger of each bank, however, could be different. The board of SBI and the government have approved proposal for negotiating the merger of five associate banks.

Such a merger will be win-win situation. It will make bank more efficient, give benefit of scale and improve SBI’s dominance in the banking space, Bhattacharya said.

The five associate banks of SBI have Indian market share around 5.30 per cent in deposits and 5.33 per cent in advances at end of March 2016.

Their net profit was Rs 1, 368.7 crore at end of March 2016. Confident turnaround in economy, SBI chief said the current financial year 2016-17 is expected to be more promising due to clear and stable policy environment. There will be more green shoots. The prospects of good monsoon, plus implementation of Seventh Pay Commission for central government staff would boost consumer demand, she said.

‘Have rich talent to lead bank’

SBI Chairman Arundhati Bhattacharya on Thursday said the country’s largest lender has a good line-up of competent bankers (managing directors or MDs) to lead the organisation. She was responding to queries on a possible succession plan after her term ends in September. She didn’t elaborate if she was to be granted an extension. Three  MDs — R Sriram, P Gupta and Rajneesh Kumar — are seen to be in the in the race for the post of chairman.