SBI Posts Surprise Loss As Provisions Surge, Treasury Income Falls
State Bank of India Ltd. reported a quarterly loss for the first time in at least 17 years as its treasury operations turned unprofitable and provisions for bad loans increased. The public lender reported an over Rs 23,000 crore divergence in bad loans from RBI’s assessment which weighed on the bottom line.
India's largest bank reported a loss of Rs 2,416.4 crore in October-December period against a profit of Rs 1,581.5 crore in the previous quarter, according to the company's exchange filing. That compares with the Bloomberg consensus estimate of a Rs 2,059 crore profit.
The loss comes at time when Indian lenders are trying to clean up mounting bad loans, aided by a new bankruptcy law, and credit growth just started to pick up from multi-year lows. “This has been a challenging year for the banking industry and SBI has been no exception,” SBI Chairman Rajnish Kumar said in a press conference to announce earnings.
The net loss has to be viewed with hardening of bond yields, treasury losses, provisions for payments of employees, Kumar said. There were also no major sale of investments this quarter, he added.
- Net interest income rose 0.5 percent to Rs 18,688 crore, largely in line with the estimated Rs 19,092 crore.
- Asset quality worsened as the gross bad loan ratio went up to 10.35 percent of the total assets from 9.83 percent last quarter and net non-performing assers increased to 5.61 percent from 5.43 percent earlier.
- SBI’s treasury operations were in a loss of Rs 3,255.7 crore compared with a profit of Rs 3,772 crore last quarter.
- A provision of Rs 700 crore was made for employee pay revision.
Why SBI Went Into Losses
The Reserve Bank of India, in its risk assessment report for 2016-17, identified bad loans worth Rs 1.35 lakh crore on SBI's books as of March 2017. That was Rs 23,239 crore higher than what the bank had reported. Accordingly, such accounts were moved to the NPA category and an additional provisioning of Rs 5,720.6 crore was made for them.
The bulk of the divergence came from the power sector, followed by steel and telecom.
- Power sector: Rs 10,000 crore
- Telecom sector: Rs 2,600 crore
- Iron and steel: Rs 4,400 crore
The accounts facing insolvency action at the National Company Law Tribunal made up for 60 percent of SBI’s provisioning. The bank’s total exposure to such accounts from the two lists by RBI stands at Rs 78,000 crore. Kumar said that he expects all accounts to be largely resolved by April this year.
Most of the accounts identified by the RBI in its risk assessment were already in the stressed asset list “in one way or another”, Kumar said. He noted that the bank's provision coverage ratio at 65.9 percent had also improved over September last year.
The bank’s strategy has been, more and more, to align the provisions with the expected losses. And the combination of these factors have resulted in the quarterly loss.Rajnish Kumar, Chairman, SBI
Now the lender aims to contain its fresh slippages and credit costs within 2 percent in the coming year. It has set an internal credit growth target of 10.3 percent for fiscal 2019. It reported fresh slippages of Rs 25,836 crore for this quarter.
The small and medium enterprises, housing, auto and personal loan segments of the bank have performed “very well”, said Kumar. He added that it will continue to focus on the MSME segment, especially with the government’s and RBI’s steps to spur growth in that sector.
SBI will get Rs 8,800 crore as capital infusion from the government's recapitalisation plan, all of it will be used to spur growth, Kumar had earlier said. This will increase the government’s stake to 58 percent.
However, Kumar announced today that SBI plans to raise Rs 20,000 crore in the next fiscal without any participation from the government itself. This means the government’s stake will come down by 3-4 percentage points after the fund raising, he added.
He expects better margins for the bank in the next fiscal.