SBI breaks bad loan jinx, but keep a watch on restructured loans

State Bank of India (SBI), the country’s largest lender, has clearly managed to break the jinx of bad loan additions by embarking on an aggressive recovery drive, but the increasing chunk of restructured loans on its books isn’t a good sign. In the absence of a fast economic recovery, this part can eventually turn sticky.[caption id=“attachment_1553357” align=“alignleft” width=“380”]  State Bank of India chairperson Arundhati Bhattacharya. PTI[/caption] SBI’s restructured loan portfolio has grown substantially in the fourth quarter. About Rs 11,885 crore restructured loans have been added to the restructured loan book of the bank in the quarter from Rs 2,580 crore in the quarter ago. SBI chairperson Arundhati Bhattacharya admitted that there was a rush to recast loans in the March quarter as the regulatory forbearance on restructured loans came to an end. Beginning April, banks need to treat any fresh restructuring as bad loans in terms of provisioning. This would mean that if a Rs 100 loan is recast, the bank needs to set side Rs 15 as against Rs 5 before. Hence, banks tried to push maximum cases to restructuring before the deadline for new norms kicked in, to minimise the impact. Some of these cases would have, otherwise, become bad loans. According to Bhattacharya, the bank has a restructuring pipeline of Rs 2,625 crore loans to be done within the extended timeframe given by the Reserve Bank of India. The fate of restructured loan portfolio will depend on the pace of economic recovery. If things don’t improve as expected, a major chunk of the restructured loans can become NPAs. Signs of this happening are already visible. As Firstpost noted earlier, data sourced from corporate debt restructuring cell (CDR), a forum of banks that takes up cases of large restructuring proposals show that Rs 57,000 crore of restructured assets were tagged as failed loans, accounts that failed to recover despite recasts, at the end of the March quarter, almost double from the year-ago period. Most economists agree that a real pick up in growth could happen only after a couple of quarters. However, for the January-March quarter, SBI has managed to show good asset quality numbers. Gross non-performing assets of the bank declined to 4.25 percent of the total loans in the quarter as compared with 4.95 per cent in the year-ago period. Net non-performing assets, during the quarter, declined to 2.12 percent from 2.57 percent in the corresponding period last year. This is the fourth consecutive quarter SBI has shown a good improvement in its asset quality. Better bad loans and consequent less chunk of provisions made (total provisions on bad debt fell to Rs 4,635.43 crore from Rs 5,883.75 crore in the year-ago quarter) pushed up the March quarter net profit to Rs 3,742 crore, up 23 per cent, from Rs 3,041 crore in the corresponding quarter last year. In contrast, other state-run banks that have reported earnings so far continue to offer indicators of persistent stress on their books. Early this month, Punjab National Bank (PNB), another leading state-run bank had posted muted earnings due to higher bad loans and subsequent provisions. PNB’s net profit dropped 62 percent on a year-on-year basis to Rs 307 crore compared with Rs 806 crore in the year ago period. Gross NPAs of PNB, during the quarter rose to 6.55 percent of total loans from 5.25 percent in the corresponding period in last year. Net NPAs, during the quarter, increased to 4.06 percent from 2.85 percent in the same period last year. In that sense, SBI is an exception to its peers and has come off past its difficult phase. Future behavior of its loan book is inevitably correlated with improvement in broader economy.