State Bank of India (SBI), the country’s largest public-sector bank, reported a strong set of numbers for the quarter ended September 30 (Q2), with its profit before tax (PBT) surging 179 per cent to Rs 5,060 crore compared to Rs 1,812 crore in the year-ago quarter on a standalone basis.
The strong showing was backed by a 46 per cent reduction in slippages (loans turning bad) and a 21 basis points (bps) rise in the net interest margin, a profitability indicator, as compared to the June quarter. These parameters were also better on a year-on-year (y-o-y) basis.
Net profit stood at Rs 3,012 crore, as against Rs 945 crore for Q2FY19. This was a y-o-y increase of 219 per cent, and was significantly ahead of the Bloomberg consensus estimate of Rs 2,411 crore. Faster growth in net profit was helped by the 4.1 per cent stake sale in its listed subsidiary, SBI Life Insurance, which got an exceptional income of Rs 3,484 crore for the bank.
In the year-ago period, exceptional income stood at Rs 1,561 crore. Commenting on the performance, SBI chief Rajnish Kumar said, “If I use the word the ‘safest’ bank of India’, I will not be exaggerating.”
“We are creating resilience to absorb the shocks of the market through the strength of our balance sheet,” he added.
SBI’s shares gained 7.26 per cent to close at Rs 281.55 on the BSE on Friday. The bank has not moved to the new tax regime yet, which will require it to set off the deferred tax assets (DTA). SBI is likely to move to the new regime (corporate tax rate of 25 per cent) by March 2020.
Net interest income (NII), the difference between interest earned and interest expended, increased to Rs 24,600 crore in Q2 from Rs 20,906 crore a year ago, an increase of 17.7 per cent.
Net interest margin (NIM) improved by 42 basis points (bps) and stood at 3.22 per cent, compared to 2.80 per cent in the year-ago quarter.
Domestic credit growth at 8.43 per cent YoY was mainly driven by retail advances, which surged 18.9 per cent, in Q2FY20. Even in the non-festive season, the retail book saw a strong traction, especially the home loan segment. Auto loans grew at 5.6 per cent YoY and the other personal loan segment recorded robust growth of 26.9 per cent. Deposits grew by 8 per cent to Rs 30.33 trillion. The share of low-cost current account and savings account (CASA) was steady on a sequential basis at 45.13 per cent with the bank sitting on excess liquidity.
The gross non-performing asset (NPA) ratio was down 276 bps YoY, and 34 bps sequentially at 7.19 per cent. The net NPA ratio, too, at 2.79 per cent was down 205 bps YoY, and 28 bps sequentially. Slippages fell 46 per cent for Q2FY20 to Rs 8,805 crore against Rs 16,212 crore in Q1. Slippages were also lower as compared to Rs 10,725 crore in the year-ago quarter.
Kumar said: “Gross slippages will not slip below 2 per cent (as a percentage of loan book) for the year in the worst-case scenario. We have divested 4.5 per cent in SBI Life and made a Rs 3,500-crore gain to the bank. We have upfront adjusted it against some NPAs of a failed restructuring power asset and fully covered its Rs 2,600 crore and have also provided for one NBFC account, which is Rs 900 crore.”
He added NPAs coming from the agriculture sector were due to loan waivers and would not move up in the coming quarters.
Overall, the provisioning coverage (PCR) ratio increased from 79.34 per cent in June quarter and 70.74 per cent in the year-ago period to 81.23 per cent in Q2FY20, the highest ever. Accounts under List 1 and List 2 have been provided to the extent of about 89 per cent. The combined SMA1 and SMA2 (watch list) stands at Rs 9,312 crore from Rs 10,289 crore in Q1FY20.
On recoveries, Kumar said, “By November 15, the bank is expecting a final judgement on Essar Steel and some other cases and is expecting a recovery of Rs 17,000 crore, which is over and above the normal recovery for the coming quarter.” “Bad loans seem to be under control for the time being,” said Siddharth Purohit, a banking analyst at SMC Global Securities.