Q2 Results: State Bank Of India’s Profit Beats Estimates On SBI Life Stake Sale

State Bank of India’s second-quarter profit more than trebled beating estimates, aided by the sale of stake in its life insurance subsidiary. The country’s largest lender also reported an improvement in its asset quality, despite concerns of renewed weakness in corporate credit quality.

Net profit rose 218 percent on a yearly basis to Rs 3,012 crore in the quarter ended September, according to an exchange filing by India’s largest public sector bank. That’s higher than the Rs 2,350 crore estimated by analysts tracked by Bloomberg.

Profit growth came on a low base as the state-run lender’s bottom line had taken a hit a year ago as it provided for bad loans. Part-sale of stake in SBI Life Insurance Company also helped boost profit.

“Exceptional items represent net profit of Rs 3,190.97 crore on sale of partial investments in SBI Life Insurance Company Ltd. Consequently, the holding of SBI in the subsidiary reduced to 75.9 percent from 62.1 percent,” the lender said.

Net interest income, or the core income of the lender, rose 17 percent year-on-year to Rs 24,600 crore, surpassing the Rs 23,075-crore estimate. Net interest margin improved to 3.22 percent from 3 percent sequentially.

Asset Quality Improves

Asset quality improved with gross non performing assets falling by Rs 6,827.89 crore to Rs 1,61,636 crore from June. Gross slippages declined to Rs 8,805 crore from Rs 16,212 crore in the previous quarter. SBI chairman Rajnish Kumar, however, cautioned that a large stressed non-bank lender has not yet fallen into the NPA category and could add to stressed assets in subsequent quarters.

• GNPA ratio contracted to 7.19 percent from 7.53 percent, while the net NPA ratio narrowed to 2.79 percent against 3.07 percent as of June.
• Provisions for bad loans fell 5 percent quarter-on-quarter to Rs 11,040 crore, but rose 8 percent over a year earlier.
• The lender’s provision coverage ratio stood at 81.23 percent versus 79 percent in the previous quarter.
• Recovery/upgradation was at Rs 3,931 crore in Q2 compared to Rs 5.769 crore in the previous quarter. The bank, however, said three large accounts are at an advanced stage of resolution with expected recovery of about 62 percent.
• Credit cost for the quarter declined 8 basis points to 1.97 percent. Gross slippages will not exceed 2 percent in the coming quarters, Kumar said.

Details of asset quality across different segments showed that bad loan ratios across retail, SME and agricultural segments rose on a quarter-on-quarter basis. This was balanced out by a fall in bad loans in the corporate loan portfolio.

Credit Growth Modest

Domestic credit growth stood at 8.43 percent year-on-year, led by retail-personal loan advances. Corporate loan growth was muted at 2.7 percent, which, according to Kumar, is due to lower utilisation of working capital limits.

Deposit growth stood at 8 percent. Within this, savings bank deposits grew 7.42 percent. SBI is the only bank which has linked its savings deposit interest repo to an external benchmark.

The bank’s cost-to-income ratio improved to 53.47 percent from 55.96 percent over last year. Capital adequacy ratio improved to 13.59 percent as of September.

Shares of SBI rose as much as 5.5 percent, the most in over a month, after the earnings. The stock has fallen 8.5 percent this year so far, underperforming the Nifty Bank Index which has risen 7.3 percent and the Nifty 50 Index that’s up 6.6 percent.

Watch | SBI Chairman Rajnish Kumar discusses the bank’s performance in Q2