SBI’s Bad Loan Pile-Up Shows Indian Banks’ Stressed Assets Yet To Peak

The country’s largest lender, State Bank of India, on Friday reported a continued build up of bad loans, suggesting that the stressed asset problem plaguing India’s banking sector is yet to peak. Shares of the lender fell sharply in response.

For the quarter ended June 2017, SBI reported a net profit of Rs 3,032 crore, marginally higher than the analysts’ expectation of Rs 2,956 crore. Net interest income or the bank's core income from operations, stood at Rs 19,323 crore. The earnings for the current quarter are not comparable to the year-ago quarter since SBI merged with its associate banks and the Bharatiya Mahila Bank in April.

No Respite From Bad Loans

Asset quality of the consolidated entity weakend during the quarter.

Gross non-performing assets (NPAs) as a percentage of total loans rose to 9.97 percent compared to 9.11 percent at the end of the March quarter. The net NPA ratio rose to 5.97 percent from 5.19 percent in the previous quarter.

During the quarter, the bank set aside Rs 12,227 crore in the form of provisions for non performing loans. Total provisions, after accounting for write-offs, stood at Rs 8,929 crore.

Slippages, or the pace at which loans turned bad during the quarter, remained high at Rs 26,249 crore. At the end of the June quarter, gross bad loans stood at Rs 1.88 lakh crore. Another Rs 39,337 crore in advances remained in the restructured category, implying that over 12 percent of SBI’s loans remain stressed.

As of June 30, the bank has put Rs 24,444 crore in corporate advances in the ‘watchlist’ of loans that could be at risk of going bad. Of this, Rs 10,531 crore came from the power sector.

In addition, the bank disclosed that it has invoked strategic debt restructuring (SDR) in loans worth Rs 12,807 crore, and the Scheme For Sustainable Structuring of Stressed Assets (S4A) for Rs 8,124 crore worth of loans.

Not all the asset quality pressure is coming from corporate loans. Like other banks, SBI too reported a jump in bad loans in its agricultural lending portfolio. NPAs in this portfolio jumped to 9.51 percent at the end of the June quarter, compared to 6.37 percent at the end of the March quarter. Bad loans in the retail segment also jumped during the quarter.

Lower retail slippages and higher recoveries will lead to reduction in retail NPAs and corporate slippages will remain largely confined to the watch-list, the bank said in an investor presentation.

The Operational Metrics

Gross advances increased to Rs 18.86 lakh crore at the end of the June quarter, up 1.46 percent compared to the same quarter last year. The bank shrunk its corporate and SME loan book, paring it down by 4 percent to Rs 9.7 lakh crore.

The growth came mostly from retail segment and within that the home loan segment. Retail advances rose 13.3 percent during the quarter, while the home loan portfolio increased by nearly 14 percent.

The bank’s deposit base jumped by 13.28 percent to Rs 26 lakh crore. Savings account deposits stood at Rs 9.45 lakh crore, an increase of 23.45 percent over a year ago.

Net interest margin for the domestic business stood at 2.5 percent compared to 2.93 percent in the previous quarter. The bank, in its presentation, said that the margins may improve by 10-15 basis points from current levels. Last month, SBI announced a 50 basis point cut in the interest rate on savings account to 3.5 percent from 4 percent earlier for most of its customers. The decision is likely to have some positive impact on the earnings.

Shares of SBI reacted negatively to the declared earnings. At 2.45pm, SBI shares were trading at Rs 280.60 per share on the BSE, down 5.4 percent.

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