SBI net rises 12% asset woes hammer stock

State Bank of India (SBI), the country's largest lender, reported a net profit of Rs 2,810 crore for the quarter ended September 30, a 12 per cent rise compared with the Rs 2,501-crore net profit in the year-ago period.

Though the banking behemoth reported a growth in profit after two quarters, investors were not impressed, since the bank also saw a rise in its non-performing assets (NPAs). SBI’s stock took a beating, ending nearly seven per cent lower on the bourses from its previous close, while the broader indices were down 1.18 per cent.

The bank’s gross non-performing asset ratio rose to 4.19 per cent as on September 30, compared with 3.35 per cent a year ago, while the net NPA ratio rose from 1.7 per cent to over two per cent.

In the second quarter, the bank had made provisions for bad assets worth Rs 2,921 crore, a 35 per cent year-on-year rise. Chairman Pratip Chaudhuri said provisioning may continue to remain at elevated levels in the coming quarters, possibly close to Rs 2,500 crore. The Reserve Bank of India's directive of higher provisioning for standard and sub-standard assets was also responsible for the rise in provisioning, Chaudhuri said.

The bank saw fresh slippages of Rs 8,000 crore during the quarter, while recovery, including upgradation, of loans stood at Rs 1,800 crore. Slippages from restructuring accounts stood at Rs 1,762 crore.

“We have almost stopped writing off loans, because following the write-off, recovery efforts may slacken. In the second quarter of the previous financial year, we wrote off Rs 662 crore of loans, while this quarter, the figure stood at only Rs 66 crore,” Chaudhuri said. Writing off bad assets helps banks reduce gross NPAs.

Chief Financial Officer Diwakar Gupta said sectors which saw stress were iron and steel, metals, and agro-based industries.

The growth in profit was primarily driven by a 33 per cent rise in net interest income and higher margins. The bank registered an all-time high net interest margin of 3.79 per cent in the July-September quarter, compared with 3.43 per cent in the year-ago period. SBI's net interest margin from domestic operations crossed four per cent.

“We expect the margins to be around 3.65 per cent this year. In the first two quarters, loan growth was slack. But since October, we have seen some pick-up in loan growth,” Chaudhuri said, adding the bank expected loan growth of 16-18 per cent in 2011-12.

However, the bank's non-interest income declined 14.43 per cent, owing to a drop in profit on investments, as it booked a marked-to-market loss of nearly Rs 500 crore on its equity portfolio. The bank has also not taken any dividend income from its subsidiaries, unlike in the year-ago period.

SBI, in dire need of capital infusion, saw depletion of its Tier-I capital, which declined to 7.47 per cent as on September 30, compared with 7.6 per cent as on June 30. The lender’s overall capital adequacy ratio also fell from 11.6 per cent to 11.4 per cent. “The government has assured us of capital infusion of nearly Rs 4,000 crore during this financial year. We see our Tier-I capital adequacy ratio improving to nine per cent by March-end,” Chaudhuri said.