The State Bank of India (SBI) building stands in Kolkata, India. (Photographer: Brent Lewin/Bloomberg)

Q3 Results: SBI’s Profit Beats Estimates, Asset Quality Improves

State Bank of India remained profitable for the second-straight quarter as its asset quality improved.

Net profit stood at Rs 3,955 crore in the quarter ended December compared with a loss of Rs 2,416 crore a year ago, India’s largest lender said in an exchange filing. That’s higher than the Rs 3,270 crore profit estimated by analysts tracked by Bloomberg.

Net interest income, or core income of the bank, rose 21 percent year-on-year to Rs 22,691 crore—in line with the Rs 22,094 crore estimate. The bank’s other income was Rs 8,035.23 crore.

Gross bad loans stood at 8.71 percent compared with 9.95 percent in the preceding quarter. The net non-performing assets were at 3.95 percent against 4.84 percent in the July-September period.

The bank is working to bring down the net NPA, Chairman Rajnish Kumar said at a press conference. He expects it to be below 3 percent by March.

The bank’s provisions stood at Rs 13,971 crore in the October-December period. That’s higher than the Rs 10,185 crore set aside in the previous quarter but lower than the Rs 17,760 crore a year ago. Its provision coverage ratio stood at 74.63 percent compared with 53.95 percent in the previous quarter.

The slippage ratio—the proportion of advances turning bad during the quarter—fell to 1.64 percent during the quarter. Total slippages stood at Rs 4,523 crore—the lowest in seven quarters. Of this, the bank reported Rs 1,308 crore worth slippages from its corporate loans portfolio.

Kumar said the bank had an exposure of Rs 900 crore to IL&FS at the holding company level, and made 50 percent provisions. The rest of the exposure worth Rs 2,200 crore was to the group’s special purpose vehicles which are all performing.

According to him, the bank currently has eight accounts in advanced stages of resolution which will help the lender recover Rs 34,000 crore. Of these, four are from the power sector, he said, adding that the sector’s Rs 5,000 crore worth of bad loans were admitted or referred to the insolvency court.

The bank said about Rs 31,449 crore worth loans of its Rs 1.95 lakh crore exposure in the power sector had been classified as NPA. Another Rs 6,105 crore worth of loans to power producers were classified as special mention accounts—those assets or accounts that shows symptoms of bad asset quality in the first 90 days.

Essar Steel Exposure

SBI said it had provided against 50 percent of its exposure into Essar Steel Ltd. The lender has put on sale its total loans to the steelmaker worth Rs 15,431 crore to asset reconstruction companies and other financial entities.

Essar Steel loan, according to the bank’s accounting practices, slipped into the D3 category, which would require SBI to fully provide against the account. Kumar said the Reserve Bank of India had allowed the bank to continue with 50 percent provisioning for the December quarter, as the resolution for the account was close.

On Jet Airways

Kumar said that a resolution plan for Jet Airways (India) Ltd. was under discussion among all lenders involved. “Once all of them approve it, the plan would be announced to the public,” he said.

Jet Airways would be the first account to be resolved under the Sashakt scheme, which intends to resolve a stressed account within 90 days of default, with the agreement of all lenders involved.

On Dewan Housing Finance

The SBI Chairman said the bank’s exposure to Dewan Housing Finance Ltd. was a “standard account” as the entire portfolio was of “good quality”.

“So far, the account remains standard and the bank will wait for further investigation in the matter before taking any action,” Kumar said.

Last week, investigative media portal Cobrapost alleged that the home loan provider had siphoned off more than Rs 31,000 crore through a network of shell companies it controls. The non-bank lender, however, refuted the charges.

The bank purchased loans worth nearly Rs 14,000 crore from non-banking finance companies, most of which came from priority sector loans. About Rs 9,900 crore were bought from the home loan segment, Rs 4,400 crore from microfinance institutions and about Rs 150 crore from the small and medium enterprises segment, Kumar said.

The bank intends to purchase another Rs 7,000 crore worth loans before March 31, 2019, he said.

The state-run bank’s total deposits were up 6.76 percent on a yearly basis to 28.3 lakh crore.

Domestic advances were 15.654 percent higher at 18.79 lakh from a year-ago period.

Shares of SBI rose as much as 3.1 percent after the earnings announcement, compared with a 0.37 percent gain in the NSE Nifty 50 Index.