Second wave: Too early to take call on asset quality dip, says SBI chief

Despite limited lockdowns this time, economic impact will be felt, household income takes a hit

State Bank of India has said the new financial year (FY22) has begun with an unexpected second wave of Covid-19 infections, accompanied by low aggregate demand and impairment of household income.

Although the containment strategy this time included avoiding complete lockdown and managing the situation through micro-containment zones, the impact on the economy will nevertheless be felt.

"It is too early to take a call of a possible deterioration of asset quality in banks due to the second wave," said Dinesh Khara, its chairman in a communication to shareholders. The annual general Meeting of shareholders is slated on June 25, 2021.

However, with rollout of pre-package insolvency for resolution, resumption of courts and formation of National Asset Reconstruction Company, efforts will be in full force to keep the momentum in stressed asset recovered in FY22, he added.

Its recoveries and upgrades in the year ended March 2021 (FY21) were Rs 17,632 crore, down from Rs 25,781 crore in FY20. The gross non-performing assets declined to 4.98 per cent in March 2021 from 6.15 per cent in March 2020. The net NPAs declined to 1.5 per cent in March 2021 to 2.2 per cent in March 2020. The provision coverage ratio improved to 87.75 per cent at end of FY21, up from 83.62 per cent in March 2020.

Khara said the Bank is comfortably placed in terms of growth capital. Opportunities for lending in promising sectors will be explored to diversify the portfolio and contain risk. Its Capital Adequacy Ratio (CAR) rose to 13.74 per cent in March 2021 from 13.06 per cent a year ago.

Overall, despite the economic headwinds, the Bank has adjusted to the challenges posed by the Covid-19 pandemic and is better positioned to tackle any subsequent wave. “I am more than hopeful that the performance achieved in FY2021 will continue in FY2022 as well”, the chairman added.

FY21 was an exceptional year and the banking operations were sustained against all odds with minimal disruption for the customers. The share of Alternate Channels in total transactions increased to 93 per cent in FY21, something which the pandemic has thrown as an opportunity.