Mumbai: The country’s largest lender, State Bank of India (SBI), posted its highest-ever net loss of Rs 77.18 billion for fourth quarter ended March 2018 (Q4) as asset quality worsened and it made large provisions for bad loans. The higher provisions for the erosion in the value of the bond portfolio due to hardening yields and wage revision, and enhancement in the gratuity ceiling (Rs 9 billion) added to the losses.
This was the second consecutive quarterly loss in 2017-18 for SBI. The bank had posted a net loss of Rs 24.16 billion in the December 2017 quarter (Q3FY18).
Its March 2017 quarter (Q4FY17) reported net profit at Rs 28.14 billion, which however does not include the financials of subsidiaries and Bharatiya Mahila Bank, which were merged into SBI on April 1, 2017. Adjusting for these mergers, SBI’s net loss stood at Rs 34.42 billion for the March 2017 quarter. The loss figure for the recently concluded quarter would have been bigger had it not been for the tax reversal of nearly Rs 45 billion.
For the full year, SBI reported a net loss of Rs 65.47 billion, as against a net profit of Rs 104.84 billion in 2016-17. Adjusting for the merger, SBI would have reported a net loss of Rs 18.05 billion in 2016-17.
Rajnish Kumar, chairman, SBI, said, “Financial year 2017-18 has been a difficult year for the Indian banking industry and SBI is not an exception to it. The numbers for 2017-18 reflect the combined performance of parent and merged entities.”
The bank has made a one-time provision for mark-to-market (MTM) losses on the bond investments in Q4 and decided not to avail the benefit of dispensation (to spread such provisions over four quarters), Kumar said.
Its asset quality profile took further knock in the fourth quarter as the bank had to reclassify standard restructured loans (about Rs 56 billion) as non-performing assets (NPAs) to meet the Reserve Bank of India’s (RBI’s) revised norms for restructured loans. The banking regulator, through its circular on February 12, had scrapped various restructuring scheme, including strategic debt restructuring (SDR).
Thus, provisions for NPAs more than doubled to Rs 240.80 billion in Q4, against a comparable figure of Rs 193.23 billion a year ago (adjusted for the mergers). Gross NPA ratio for the quarter was at 10.91 per cent, against 9.11 per cent a year ago and 10.35 per cent in the third quarter.
The gross NPA stood at Rs 2.23 trillion, against Rs 1.99 trillion in the December quarter, indicating slippage of about Rs 242.86 billion in a quarter. At current levels, the gross NPA is a shade lower than SBI’s market cap of Rs 2.27 trillion. Gross NPAs were at Rs 1.78 trillion in the year ago quarter. The watch list, reflecting pool of vulnerable loans, which could turn into NPAs, at start of FY19 is Rs 258.02 billion.
After provisioning, net NPA ratio was at 5.73 per cent for quarter ended March, against 5.19 per cent a year ago and 5.61 per cent in the December quarter. The provision coverage ratio (PCR), including written-off accounts, increased to 66.17 per cent as of March 2018 from 61.53 per cent as of March 2017. SBI expect certain big cases referred to the NCLT (National Company Law Tribunal) to get resolved in the next two quarters. The first list of NCLT cases involves an exposure of about Rs 500 billion.
The bank’s treasury operations incurred a loss of Rs 33.5 billion in the fourth quarter, against loss of Rs 32.55 billion in the third quarter of 2017-18.
Turning to its earnings from loans, the chairman said net interest income (NII) declined by 5.18 per cent from Rs 210.65 billion in Q4FY17 to Rs 199.74 billion in Q4FY18, contributed mainly by reduction in MCLR & Base Rate (the benchmark lending rates for customers) and increase in NPAs. The bank had to reverse interest income on some loans which were declared as NPA.
The net interest margin (NIMs) in domestic business declined by 26 basis points from 2.93 per cent for quarter ending March 2017 to 2.67 per cent in Q4FY18, while sequentially it went up by 6 bps from 2.61 per cent.
For FY18, NIMs were at 2.50 per cent, down from 2.74 per cent a year ago. With much of provisioning done and growth in loan book, SBI expects NIM to be around 2.75 per cent.
Non-interest income rose by 2.23 per cent from Rs 122.22 billion in Q4FY17 to Rs 124.95 billion in Q4FY18, driven mainly by higher fee income and recovery in written off accounts.
SBI’s gross advances were up by 4.91 per cent from Rs 19.52 trillion in March 2017 to Rs 20.48 trillion at end of March 2018. Bank has indicated 10 per cent growth in loan book during FY19 on the back of accelerating economic growth.
While expanding loan book, it will not poach into banks under the prompt corrective action plan, and instead compete hard with private sector players for garnering corporate and retail loans, Kumar said.
Retail loans are among the key highlights, given the 13-15 per cent increase in the loans to segments such as home, auto and personal. Along with SME and agri loans, the retail loan share is 57 per cent and is driving the bank’s asset growth.
The deposits showed a year-on-year growth of 4.68 per cent at Rs 27.06 trillion at end of March 2018. SBI is looking at 9 per cent growth in deposits in FY19 with focus on increasing share of low-cost deposits comprising savings and current accounts (CASA). The share of CASA in total deposits grew to 45.68 per cent at end of March 2018, from 44.4 per cent a year ago.
A decline in top-line meant that its cost-to-income ratio inched up in FY18. However, the focus on digital initiatives and a growing loan book should help improve this metric in FY19.
The bank’s capital adequacy ratio stood at 12.60 per cent, while its core equity ratio was at 9.68 per cent. It plans to raise upto Rs 200 billion in FY19 through retained earnings, sale of non-core asset and issuing additional tier-I bonds upto Rs 80 billion.
At close of trading, SBI’s share price was up 3.7 per cent, to Rs 254 a piece on BSE.