Bad loans surge: Why SBI stock crashed to 7-month low post Q4 earnings

Even though State Bank of India reported a recovery in its asset performance in the fourth quarter of the current fiscal, the bank’s net profit dropped 19 percent year-on-year to Rs 3,300 crore as net interest incomeslipped more than 5 percent y-o-y o Rs 11,080 crore.

State Bank Of India Chairman PratipChaudhuri said it continued to face challenges in the mid and small-sized companies segment.

The lender is reeling under bad debt of 4.75 percent, the highest among Indian banks, and restructured nearly $1.5 billion loans in January-March quarter. “The bigger concern is that that nearly 25% of the loan restructured are becoming bad,” said Chaudhuri.

Following the earnings announcement, the stock slipped 6.67 percent at Rs 2206.70 on the Bombay Stock Exchange, which was down 368 points or 1.84 percent at 19696.

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Net interest income, the difference between interest earned and interest expended, fell 4.4 percent to Rs 11,080 crore. Analysts attributed the poor stock performance to higher provisioning against loan losses.

Speaking to reporters, Pratip Chaudhuri said that during the quarter, the bank restructured two big accounts - Reliance Power’s Sasan project amounting to Rs 1066 crore and Suzlon Energy’s loan of Rs 1600 crore.

Asset quality at the bank worsened over the past year. Non-performing loans as a proportion of total assets rose to 4.75 percent, the highest among Indian banks, from 4.4 percent at the end of March last year. It stood at 5.3 percent at end-December.

The gross Non-performing Assets (NPAs), which represents portion of bad loans, stood at Rs 51,189 crore at the end of March, up from Rs 39,676 crore in the year ago period.

According to Vaibhav Agrawal of Angel Broking, SBI results are not good due to high NPA levels and low NII.

“On the gross NPA, SBI has delivered a little bit better than Street expectations. This might have been possibly aided by strong recoveries and write-offs. But I think the net NPA is more or less in line or a bit higher. There is a Rs 2,000-crore sequential increase in net NPA and I think the reason for that is that it is not been able to provide that much because their NII itself has come in well below Street expectations,” he said in an interview with CNBC-TV18.

The bank’s restructured accounts too are way above estimates- at Rs 4,694 crore as compared to around Rs 580 crore in the previous quarter- indicating that the restructured book has increased quite significantly and maybe the recoveries might not have been as high as expected.

According to Agrawal, the results of all PSU banks reveal a phenomenon of interest reversals due to the large restructuring and chunky bad loans. “This is again something which could possibly continue as long as even the NPA results remain elevated in the next quarter or two,” he said.

Overall, bad loans have risen to a record in India as the country’s worst economic slowdown in a decade clouds the outlook for banks including SBI, which accounts for a quarter of all loans and deposits in the country.

SBI, exposed to many of the biggest, most troubled borrowers including Suzlon Energy and Kingfisher Airlines has said it would ease payment terms on loans of Rs 3700 crore in the March quarter.

With inputs from Reuters