SBI: Mid-corporate, SME loans still stressed

MVS Santoshkumar, BL Research Bureau Nov 10,2012

The net profit growth of State Bank of India was driven by one-off items even as asset quality stress continues unabated.

Muted net interest income growth due to fall in margins also took a toll on the profitability. SBI wrote provisions worth Rs 260 crore back, which it had set aside for investment depreciation.

This coupled with Rs 230 crore profits on sale of investments led to a net profit growth of 30 per cent.

The domestic net interest margin declined from 3.86 per cent in the June quarter to 3.68 per cent on the back of lending rate cuts and lower credit-deposit ratio.

Rising deposit costs, reversal of interest income accrued on stressed loans and booking of net present value loss on restructured loans also led to fall in margins.

The slippage of assets into non-performing category in the case of SBI was lower than most public sector banks.

SBI’s gross NPAs rose by 16 basis points sequentially as compared to 50 basis points jump in the case of many other public sector banks.

But the NPA rise would have been higher had SBI not written off Rs 2,000 crore worth of NPAs.

Asset quality continues to deteriorate in three segments — SME, mid-corporate and agriculture loans.

The SME and mid-corporate group showed severe stress with fresh slippages from these two segments accounting for 77 per cent of fresh slippages in the September quarter.

While the loan growth to these segments declined, rising slippages continues to be a concern.

Incidentally, including the restructured loans, the net stressed assets of the mid-corporate group was close to 20 per cent as compared to around 6 per cent for the whole bank.

In agriculture loans, the bank is increasing collateral based lending to cap asset quality pressures.