State Bank of India – the nation’s largest lender – reported 34% decline in net profit for the quarter ended December 2013 to Rs 2234 crore the mainly due to higher provision for bad loans which prompted the bank to unveil a new plan to identify stress early.
Profitability was also hurt due to higher provisioning toward employee wages and benefits. The net profit for Q3 of 2012-13 was Rs 3,396 crore. This was the fourth straight quarter that the lender has seen decline in profit on year-on-year basis. Operating expenses of the bank rose 31% to Rs 9212 crore on the back of 35% increase in staff expenses which resulted in decline on operating profit of 2% to Rs 7618 crore.
The net interest income in Q3 of FY14 rose by 13.1% to Rs 12,640 as against Rs 11,176 crore in Q3 of 2012-13. Loan growth in large advances was muted though demand continued for retail credit like home and auto loans.
The bank has to make Rs 3429 crore provisioning – a 24% increase -- for bad loans on the back of Rs 11,000 crore slippages as compared to cash recovery and upgradation of around Rs 2700 crore. While the bank has written off loans worth Rs 5077 crore but the management says those are technical in nature and the bank will continue its effort to recover those.
As a result, gross NPA, rose for the fourth consecutive quarter which was at Rs 67,799 crore or 5.73% of total advances. The stressed asset ratio ( NPA + standard restructured advances) was also over 9%.
In order to quickly identify stress in the system, the bank has decided to create 4 general managers to look after stressed asset recovery branch and has created a committee which will look at account which shows sign of weakness, Arundhati Bhattacharya, chairman of the bank said. She will also head the committee which will accounts above Rs 500 crore.
In addition, there will be weekly review of all accounts and the bank will put in place technology backed early warning system for NPAs.
"We will do a better management of what we have and have much better processes in place to pick and choose. We will have much better early warning signals," she said.
According to RK Saraf, chief financial officer of the bank, it the mid corporate and small and medium enterprises saw maximum stress. While mid-corporate gross NPA was 11.39%, from SME it was 9.09%. Though the agricultural portfolio has also shown high NPA (10.95%), but the bank said most borrowers are coming back to repay their dues on the back of favourable monsoon and good harvest.
Bhattacharya was candid in acknowledging that the worst is still not behind the Indian banking system
“It is not fair to say that the worth is over. The situation (asset quality) will improve once economic activity picks up. It will take two quarters (for banks) after GDP growth starts turning up,” she said. “I don’t have a magic wand, we have to work through the pits,” she added.
The bank was able to control its cost of deposits, which aided in marginal improvement in yields sequentially to 3.49%. The chairman, however, declined to give any guidance on the margin front.
The capital adequacy ratio (under Basel III) stood at 11.59% at end of December 2013.