Source :Anup Roy :Live Mint : WED:15 FEB 2012
Mumbai: State Bank of India (SBI) on Monday posted a 15.4% rise in its third quarter net profit, beating the Street’s expectations, but analysts are wary about the quality of assets of the nation’s largest lender.
The bank returned a profit of Rs. 3,263 crore for the three months ended December, against Rs. 2,828 crore in the year-ago quarter, and the number would have been higher but for the hefty provisions for loan losses, which zoomed 84.2% to Rs. 3,006 crore in the quarter.
SBI shares dropped 2% to close at Rs. 2,129 apiece on Monday on BSE even as the bourse’s benchmark index, the Sensex, gained 0.14% and the banking index, the Bankex, gained 0.36%.
The bank’s bad or non-performing assets (NPAs) at the end of the quarter stood at a record high of Rs. 40,098.43 crore. In percentage terms, these constituted 4.61% of the bank’s total advances, the highest since September 2005.
After setting aside money for bad assets, SBI’s net NPAs were 2.22%, again a six-year high.
In the quarter ended 30 September 2005, the gross NPAs were 5.26% and net NPAs, 2.27%.
The bank said around Rs. 6,000 crore of loans had turned bad in the quarter.
“Out of these fresh NPAs, about one-fourth were on account of an airlines company,” said Pratip Chaudhuri, the bank’s chairman, without naming the carrier.
Analysts said loans of Kingfisher Airlines Ltd had turned NPAs in the December quarter for several banks after the loan was restructured and some banks converted part of their debt into equity.
SBI also saw Rs. 750 crore of loans turning bad in its agriculture portfolio, Rs. 666 crore in iron and steel, and Rs. 462 crore in textiles.
Chaudhuri said the bank’s situation would improve in the coming quarters.
“The NPA storm that hit us previously has largely subsided and we expect the slippages to have plateaued and, going forward, we will have a much stable asset quality,” he said. “The worst is over. The bank is now on a consistent path of profitability.”
SBI’s total outstanding restructured portfolio at the end of the December quarter was at Rs. 37,610 crore. However, many of the accounts turned NPAs in the quarter and the outstanding restructured loans in the bank’s book were about Rs. 31,000 crore, it said.
Is the worst over?
Analysts are divided on the road ahead for the bank.
“The worst could be over for the bank as far as asset quality is concerned and from here we can expect to see improvements. Margin performance is impressive while asset quality remained very challenging, with incremental slippages at elevated levels,” said Saikiran Pulavarthi, analyst with Espirito Santo Securities.
However, according to another analyst with a local brokerage firm, the bank’s new bad loan accretion is alarming. “When the economy is not doing well, the bank will face higher slippages in the coming quarters as well. A bad debt portfolio of more than Rs. 40,000 crore was a huge negative surprise for us,” said the analyst, who did not want to be named.
Despite the rise in bad loans, SBI’s profitability improved noticeably.
Net interest margin, or the difference between yields on advances and cost of funds, increased to 4.05% in the quarter from 3.61% a year ago.
Total interest income rose 29.18% to Rs. 27,661 crore in the quarter and net interest income increased 26.7% to Rs. 11,466 crore.
Non-interest income of the bank, however, dropped 35.85% to Rs. 2,126 crore. This is mainly because SBI booked a Rs. 831 crore loss selling some of its investments against which it had booked mark-to-market (MTM) losses earlier. MTM is the practice of pricing an asset according to the current market price instead of the price at which it was acquired.
The bank has been carrying MTM losses against this portfolio for quite some time, but the management decided to get rid of these assets and clean its books, Chaudhuri said.
Equity portfolio sold
The chairman did not give details of the assets, but said most were related to some initial public offerings to which SBI had subscribed. “We have cleaned out our equity portfolio and sold out our loss-making assets,” he said.
In the first three quarters, the bank’s deposits grew at 7.18% and crossed Rs.10 trillion in the quarter. Year-on-year, the growth has been 13.88%.
SBI’s share of current and savings accounts in total deposits fell marginally to 47.52% in the quarter as against 47.93% a year ago even as the bank’s share of high-cost bulk deposits were at a record low of 12%.
Advances grew at 12.64% year-to-date to Rs. 8.70 trillion. Year-on-year, the growth was 17.49%.
Chaudhuri kept the bank’s credit growth guidance intact at 16%.
Large corporate advances grew 16.37% year-on-year to Rs. 1.23 trillion, while advances to mid-corporates increased 11.74% to Rs. 1.66 trillion.
SBI’s retail advances increased from Rs. 1.57 trillion in December 2010 to Rs. 1.75 trillion in December 2011, registering a growth of 11.89% year-on-year. Home loans touched almost Rs. 1 trillion, growing 16.30% year-on-year.
The bank’s capital adequacy ratio in December was at 11.6%, with its core capital, or tier-I capital, at 7.59% of assets. The government has committed Rs.8,000 crore to the bank as a recapitalization measure and this will take the tier-I capital ratio over 9%, Chaudhuri said.
“Once we get the capital along with using our internal accruals, we will have a very healthy capital adequacy ratio and we will press Moody’s to re-rate us,” he added.
Global rating agency Moody’s Investors Service had in October downgraded the bank’s financial strength rating by one notch to D+ on account of the lower capital adequacy ratio.
The bank may sell or absorb its factoring arm SBI Global Factors Ltd as after the Factoring Regulation Bill was passed by Parliament, a bank can take up factoring business on its own and does not require an arm, Chaudhuri said.
SBI does not have any plan to cut its lending rate, but will reduce rates in selective services, for instance, in the case of education loans, Chaudhuri said. “We did not hike rates in the last three times when RBI hiked its policy rates. Also, our base rate is the lowest among all banks, so we don’t really see any reason to cut rates,” he added.
Ashwin Ramarathinam contributed to this story.
anup.r@livemint.com
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