Almost on all counts, State Bank of India’s (SBI) third quarter numbers are below estimates. The bank’s financials during the quarter deteriorated significantly compared to last year, thanks to higher operating costs and provisions. Deteriorating asset quality and cost pressure continued to hit profitability.
SBI reported slippages (fresh accretion of stressed assets) of Rs 15,340 crore during the quarter. Of these, bad loans accounted for Rs 11,440 crore and restructured assets stood at Rs 3,900 crore. Consequently, gross non-performing assets (NPAs) touched 5.7 per cent of loans, while net NPAs hit 3.2 per cent of loans during the quarter.
The bank has indicated it is expecting restructured loans to touch Rs 9,000 crore over the next two quarters, which means the pressure on asset quality continues. Though larger accounts are now showing stress, the bank continues to maintain the stress in asset quality is restricted to medium and small enterprises. The bank’s impaired assets ratio (net NPAs plus restructured assets) is expected to remain elevated at nine per cent.
On the positive side, SBI has managed to hold on to its net interest margin (three per cent in Q3), despite the challenging environment, thanks to higher loan growth and higher share of low-cost current and savings account deposits (43.9 per cent of total deposits). Net interest income rose 13.1 per cent to Rs 12,641 crore over a year in the third quarter. Non-interest income rose 15.54 per cent. However, higher provisioning, both for wages and impaired assets, eroded the bottom line. Compared to last year, the bank’s net profit fell 34 per cent to Rs 2,234 crore on higher expenses and provisioning. Operating expenditure rose 31 per cent and provisioning expenses grew 54 per cent over a year, as net NPAs rose 24 per cent.