SBI disappoints St as bad loans grow as fast as net profits

State Bank of India’s (SBI’s) December quarter results highlight the issue facing public sector banks. While income and profits are increasing steadily, bad loans continue to be a drag.

SBI announced a net profit of Rs 3,263 crore as compared to Rs 2,810 crore in the September 2011 quarter while its net profit in December 2010 was Rs 2,828 crore.

Though the profit is better than expected, its asset quality continues to worry. The bank has gross non-performing assets (NPAs) of Rs 40,098 crore, which is almost 4.61 percent of its loan book as compared to 4.19 percent in the third quarter. Almost Rs 6,152 crore has been added to gross NPAs.

[caption id=“attachment_211606” align=“alignleft” width=“380” caption=“Net NPA is at 2.22 percent at Rs 18,803 crore as compared to 2.04 percent at Rs 16,120 crore. AFP”]  [/caption]

Net NPA is at 2.22 percent - at Rs 18,803 crore as compared to 2.04 percent, or Rs 16,120 crore. Around Rs 2,683 crore has been added to net NPAs in three months.

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Provisioning has increased marginally from Rs 2,921 crore to Rs 3,006 crore.

Other income of the bank is substantially lower, down from Rs 3,427 crore in the previous quarter to Rs 2,125 crore as the bank has booked a Rs 817 crore loss on its equity portfolio.

The bank’s capital adequacy ratio (CAR) has improved marginally to 11.60 percent during the quarter as compared to 11.40 percent in the previous quarter. Tier 1 capital stands at 7.59 percent, which Chairman Pratip Chaudhuri is confident will touch the 9-percent mark by March 2012 after taking into account the Rs 7,900 crore the government will pump in and the bank’s profits. On the capital adequacy front, the bank expects to close the fiscal year with a figure of 13 percent.

The treasury’s contribution to the bottomline has been the highest. While treasury has been making losses in the earlier quarters, the division posted an earnings before interest and tax of Rs 692.50 crore. Treasury operations had resulted in a loss of Rs 49.82 crore in the September quarter and a loss of Rs 724.53 in the December 2010 quarter.

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On the net interest income front the bank has done reasonably well with a 26.7 percent growth to Rs 11,463 crore. This has been possible due to the bank increasing the share of retail deposits as compared to high-cost bulk deposits. These high-cost bulk deposits currently stand at an all-time low of 12 percent.

This has resulted in the net interest margin (NIM) of the bank improving to 3.82 percent as compared to 3.7 percent in the previous quarter. Buoyed by the third quarter numbers, the management has revised the NIM for the year at 3.80 percent as compared to 3.75 percent earlier.

SBI’s management is confident of touching a net profit run of Rs 3,000 plus crore going forward on higher margins. However, its deteriorating asset book seems to be growing faster than its profit.

Till the time the bank addresses the issue of its NPAs, the stock market is unlikely to give Pratip Chaudhuri the discounting of 12-13 times its profits which he was seeking in the press conference.It was on this concern that the stock closed the day 2.15 percent lower at Rs 2,125.