SBI's profit grows first time in 6 quarters to Rs 3,349 cr; surprises street

State Bank of India (SBI), the country’s largest lender in terms of assets, on Friday reported a better-than-expected net profit for the quarter ended 30 June on account of higher net interest income and lower bad loans.

This is the first time in six quarters SBI is posting a growth in net profit.

Net profit, for the quarter, rose 3.3 percent to Rs 3,349 crore from Rs 3,241, in the year-ago period. A CNBC-TV18 poll had estimated a 13 percent year-on-year fall in the profit figures to Rs 2,824 crore.

Net interest income of the bank - the difference between its interest expended and interest earned, which is a bank’s core income - increased 15 percent to Rs 13,252 crore from Rs 11,512 crore a year ago. This too is better than the poll estimate of Rs 13,036 crore.

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The bank’s net interest margin, the spread between a bank’s lending rates and deposit rates, which is a key measure of its profitability, stood at 3.54 percent as against 3.49 percent a quarter ago, CNBC-TV18 reported.

Gross non-performing assets (NPAs) of the lender declined to 4.90 percent from 5.56 percent of total loans. Net NPAs, or bad loans after making provisions, meanwhile declined 2.66 percent from 2.83 percent in the year-ago period.

SBI chairman Arundhati Bhattacharya said the pressures on account of bad loans have begun subsidizing but a stable recovery in the asset quality will depend on how soon the economy revives.

“We are not seeing any new projects coming up actually,” Bhattacharya said. Fresh slippages, or loans turning bad, in the June quarter stood at Rs 9,932 crore as compared with Rs 13,766 crore in the year-ago period.

During the quarter, the bank sold out Rs5,566 crore of loans to asset reconstruction companies, which include Rs486 crore that are standard or not classified as bad loans yet, Bhattacharya said.

While the bank has improved the bad loan situation in the June quarter, bank’s agriculture loan portfolio has witnessed stress, especially in the southern state of Andhra Pradesh and Telangana, where state-governments are planning loan waivers to fulfill their poll promises, Bhattacharya said.

“The credit culture of borrowers has taken a hit in those regions,” Bhattacharya said. Incremental slippages in the agriculture portfolio stood at Rs1,559 crore during the quarter.

The bank has informed its reservations on going ahead with the waiver, Bhattacharya said.

Total provisions made by the bank rose 22 percent to Rs 3,497 crore from Rs 2,866 crore in the corresponding period in last year.

Under norms, banks need to set aside money to cover bad and restructured assets. As against 0.4 percent provision for standard loans, provisions for bad loans can range from 20 percent to 100 percent depending upon the quality of the asset.

Shares of SBI closed 0.9 percent down at Rs2,415.25, while India’s benchmark equity index, Sensex ended down 1.02 percent at 25329.14 points, while bankex, the index of major bank stocks, closed 1.51 percent at 16903.81 points.

In the intra-day, share of SBI fell nearly 2 percent post the announcement of the first quarter numbers.

During the quarter, SBI’s total deposits rose to Rs14,18,915 core, up 12.85 percent from the year-ago quarter, while advances rose to Rs12,32,288 crore, up 12.52 percent, from Rs 10,95,145 crore.

The net interest margin of the lender, or the spread between interest earned and interest expended, rose to 3.54 percent from 3.44 percent.

“It was commendable that the bank could continue to drive cost controls even over relatively non-discretionary spends also like lighting, stationary, insurance and depreciation too. Consequently, the operating profit grew by 16.4% yoy,” brokerage firm Emkay said in a post earnings research note yesterday.

The brokerage firm further noted that asset quality optically remained stable with gross and net NPAs remaining flat. “It was largely driven by asset sale to ARC and higher write offs. The bank sold off asset worth Rs 5,560 crore to ARC, of which Rs 2,330 crore was accounted in recovery and Rs 3,000 crore as write off,” it said.

Most state-run banks have logged modest rise in their bottom line numbers in the June quarter hit by a rise in bad loans and subsequent provisions.

On the other hand, private sector banks have reported better numbers. Besides the economic slowdown, large delays in receiving clearances for projects too have contributed to the rise in bad loans.

Rising bad loans have been a concern for most Indian banks.Total bad loans of India’s 40-listed banks, as at end June, stood at Rs2.45 lakh crore, while total restructured loans under the so-called corporate debt restructuring mechanism alone stood at over Rs2.5 lakh crore.

The actual number of restructured loans will be even higher because banks also do bilateral loan recasts.

Analysts said SBI’s earnings came better than expected. “The asset quality numbers have come better than expected. However, we need to see how the scenario evolving in the approaching quarters,” said a Mumbai-based banking analyst.