State Bank of India Q3 net profit rises 30% - Livemint

The rise in profits was helped by strong treasury income and single-digit increase in expenses, which have been a major drag for other state-owned banks that provide more towards their employee expenses. Photo: Pradeep Gaur/Mint

Mumbai: State Bank of India (SBI ), the country’s largest lender, on Friday posted a 30% increase in fiscal third-quarter profit but warned that it will still take some time before credit growth picks up and asset quality improves.

Large companies are still not borrowing money from the bank, chairperson Arundhati Bhattacharya said on Friday after announcing the results. SBI’s loan book has grown by a mere 1.91% since the beginning of 2015. Advances in the three months ended 31 December, however, expanded nearly 7% compared with the year-ago period.

“I would like to wait for two-three quarters more before we can say the pain (of bad asset accretion) is over,” Bhattacharya said. “We are now seeing a trickle of new projects in the renewable energy space, but we expect the growth to remain muted in the next two quarters at least.”

SBI posted a net profit of Rs.2,910.06 crore, up by 30.24% against Rs.2,234.34 crore in the comparable quarter of 2013-14.

The rise in profits was helped by strong treasury income and single-digit increase in expenses, which have been a major drag for other state-owned banks that provide more towards their employee expenses. Employee expenses at SBI shrank 0.43%, while total operating expenses rose 5.51% to Rs.9,720 crore.

India’s banks, particularly those run by the government, have seen rising bad loans and stressed assets as companies struggle to repay debt due to muted economic activity. Public sector banks in December had bad debt worth Rs.2.64 trillion, up about 21% from the year-ago’s Rs.2.19 trillion.

In the absence of sufficient credit growth, the bank parked its money in government bonds, the sale of which yielded the bank Rs.920 crore in profit, compared with Rs.238 crore in the year-ago quarter.

Even so, the profit was lower than the estimate of Rs.3,326.3 crore forecast by 26 analysts polled by Bloomberg.

Net interest income, or interest earned on loans minus interest paid for deposits, increased 9.19% to Rs.13,776.64 crore from Rs.12,616.45 crore a year ago. Non-interest income rose 24.27% from a year ago to Rs.5,237.80 crore.

Investors cheered the results. SBI’s stock rose 7.96% to Rs.307.05 on BSE, while the benchmark Sensex rose 1% to 29,094.93 points.

Lower fresh slippages on a sequential basis and stable gross non-performing asset (NPA) numbers were positive surprises, according to Saday Sinha, banking analyst with Kotak Securities Ltd .

“Although profit after tax came in marginally lower than our expectations..., good performance on the asset quality front is likely to bode well for the stock,” Sinha said.

Advances as of 31 December stood at Rs.12,65,483crore, up from Rs.11,83,723 crore a year ago. Of this, large corporate advances rose 20% and stood at Rs.239,618 crore compared with Rs.199,658 crore a year ago. Mid-corporate segment growth fell 0.32%, while loans to small and medium enterprises saw only a 0.10% increase. The growth in the large corporate segment was achieved partly because the bank took over some projects from other lenders.

The bank’s deposits stood at Rs.1,510,077 crore, up 11.86% from a year ago.

Domestic net interest margin, or the difference between the yield on advances and the cost of deposits, stood at 3.5% on 31 December, up marginally from 3.49% in the three months ended 30 September.

Asset quality remained stable. Gross NPAs were 4.9% of advances compared with 4.89% in the preceding quarter. In the year-earlier period, gross NPAs were at 5.73%. Fresh slippages during the reporting quarter stood at Rs.7,043 crore, down from Rs.11,438 crore a year ago. Provisions for bad debts rose 37.59% to Rs.4,717 crore.

SBI restructured loans worth Rs.4,092 crore, compared with Rs.4,351 crore in the July-September period. Its outstanding restructured loan book stood at Rs.46,542 crore, up from Rs.43,962 crore a year ago.

The bank expects to restructure loans worth Rs.5,000-5,500 crore during the January-March period. The number is on the higher side, said Bhattacharya, in view of a “particular window closing.”

The Reserve Bank of India has said any restructuring done after 1 April will have to be classified as an NPA, attracting provisions of at least 15%.

Presently, banks provide only 5% as provision on restructured loans as they are not classified as bad debt.

Upgradation and recovery during the quarter stood at Rs.667 crore, as compared with Rs.2,768 crore a year ago. The recovery was hampered as the bank could not sell their bad debts to asset reconstruction companies. The bank on 14 March will auction Rs.1,200 crore of its bad assets.

SBI may also consider selling stakes in some of its subsidiaries, particularly in insurance ventures. Both the existing partners in these businesses, as well as other investors, have shown interest, Bhattacharya said. The bank does not have any immediate plan to sell a stake in its funds management business, though. The bank has also engaged eight investment banks to raise up to Rs.15,000 crore, but has not decided on when to raise the money.