SBI profit drops 99% to Rs 20.8 cr, stock falls 8%

Higher provisioning sharply dragged the net profit of State Bank of India, the country’s largest lender, by 99 per cent to Rs 20.88 crore for the fourth quarter ended March 31, 2011, against Rs 1,866 crore in the corresponding quarter last financial year.

This was the lowest quarterly profit reported by the bank in 12 years. As a result of the dismal performance, the bank’s stocks fell by almost eight per cent to close at Rs 2,413.60 on the Bombay stock Exchange.

Total provisions of the bank increased by 82.10 per cent to Rs 6,059 crore during the period under review, as compared to Rs 3,327 crore in the same period last year. The bank's provision for bad loans in the quarter rose to Rs 3,264 crore from Rs 2,187 crore a year ago. The bank also had to bear additional provisioning of Rs 500 crore due to the teaser loans. The Reserve Bank of India has raised the standard asset provisioning requirement on teaser loans by 5 times to 2 per cent. According to the bank’s chairman Pratip Chaudhury, SBI’s exposure to teaser loans is about Rs 25,000 crore. SBI has already withdrawn the teaser loan scheme.

The bank created a counter-cyclical provisioning buffer of Rs 2,330 crore as of March 31, 2011 as against the total need of Rs 3,430 crore, the shortfall of which is to be met by September 2011.

Provisions are expected to be on the higher side in the current quarter as well, SBI's management said. The bank will have to keep aside about Rs 1,000 crore for sub-standard and doubtful loans, and Rs 500 crore for restructured assets due to new RBI norms, which has increased the provisioning requirement for bad loans.

Tax expenses, which shot up to Rs 1,901 crore in Q4, against Rs 977 crore, also dragged the bottom line. The profit would have been completely wiped out if additional pension cost of Rs 7,927 crore was not charged to the reserves. Analysts said charging such an item to the reserves and not to the profit and loss account was not a conservative accounting practice, though it was permitted by the RBI. The bank’s capital adequacy ratio came down to 11.98 per cent from 13.39 per cent as it had set aside provisions for pension from reserves. The tier-I capital also fell to 7.77 per cent, though it is above the regulatory requirement of 6 per cent.

The bank is now keenly awaiting government subscription of the proposed rights issue worth Rs 20,000 crore to boost its tier-I capital.

The bank clocked a 20.32 per cent growth in advances, and 16.14 per cent growth in deposits in the last quarter. Its net interest income (NII) increased by 19.89 per cent in the last quarter to Rs 8,058 crore. The net interest margin declined about 30 bps sequentially to 3.32 per cent in the fourth quarter. However, as the bank has sharply increased its base rate (by 75 bps), it expects NIM to be about 3.50 per cent by the end of 2011-12.

“Loan growth for the whole year will be slightly moderate. Earlier, we had projected an advances growth of 20-22 per cent. Slight reduction in the loan book will be realistic now. We will be selective in loan growth. We are at a comfortable level, and are looking at optimising the use of capital by shedding assets that are less useful, like unused working capital,” said Chaudhuri.