Customers enter a State Bank of India Bank (SBI) branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Q4 Results: SBI Reports Second Consecutive Quarterly Loss As Provisions Rise

The country’s largest lender State Bank of India reported a loss for the second consecutive quarter as provisions for bad loans surged.

The public sector bank’s loss stood at Rs 7,718 crore in the March quarter, according to its exchange filing. That’s higher than Rs 4,170 crore loss expected by analysts tracked by Bloomberg. For the December 2017 ended quarter, SBI has reported a loss of Rs 2,416 crore. The bank’s fourth quarter earnings are not comparable with the year-ago period since the lender merged its five associate banks with itself on April 1, 2017.

SBI’s loss is the second-largest quarterly loss reported across Indian lenders. Last week, Punjab National Bank reported the largest ever loss of Rs 13,417 crore.

Asset Quality Hit

A number of state-owned banks have reported a net loss for the March quarter. That's because the Reserve Bank of India, in a February circular, had withdrawn existing stressed asset schemes and asked banks to re-classify these accounts as bad loans if the implementation of these schemes was not yet complete.

This impacted the level of non-performing assets (NPAs) at SBI as well.

  • Gross NPA ratio rose to 10.9 percent from 10.35 percent in December.
  • Net NPA ratio rose to 5.73 percent from 5.61 percent in December
  • In absolute terms, gross NPAs rose to Rs 2.23 lakh crore from Rs 1.99 lakh crore at the end of December.
  • Fresh slippages, which reflect new loans turning bad, rose to Rs 33,670 crore compared to Rs 25,836 crore in the previous quarter.

As bad loans rose, the bank had to set aside a lot more for cover for these delinquencies. Provisions jumped to Rs 28,096 crore in the March quarter compared to Rs 18,876 crore in the December quarter. The bank said that it had made use of the RBI’s dispensation allowing banks to reduce the provision against accounts being resolved in the National Company Law Tribunal to 40 percent from 50 percent.

It has, however, provided fully for any mark-to-market losses incurred on the bond portfolio despite the regulator allowing lender to spread out this hit over a four-quarter period. The bank has taken a mark-to-market hit of Rs 6,000 crore over the last two quarters, the management said at a press conference.

The bank’s provision coverage ratio stands at 66 percent, which reflects the strength of the balance sheet, said Rajnish Kumar, chairman of the bank.

Financial year 2017-18 has been a difficult year for the entire industry and SBI is no exception. The loss number may look big but look at the strength of the balance sheet.
Rajnish Kumar, Chairman, State Bank of India

Kumar added that the bank has “put the past behind” it. Some remnants of the bad loan cycle, however, remain. In its analyst presentation, the bank said that has put loans worth Rs 25,802 crore (1.3 percent of advances) in the watchlist for the current financial year. Of this, Rs 10,575 crore comes from the power sector.

Operational Performance

The bank reported a decline in its net interest income on a year-on-year basis, while the loan book saw modest growth.

Net interest income declined by 5.18 percent to Rs 19,974 crore in the March ended quarter from Rs. 21,065 crore in the corresponding quarter. The bank provided comparable data for the year ago period by including associate banks and Bharatiya Mahila Bank, which were merged with SBI starting April 2017.

The decline in net interest income was mainly due to the reduction in lending rates and an increase in NPAs, the bank said in its press release.

Domestic advances rose 4.8 percent. Much of the growth came from lending to the services industry and from retail loans. Auto loans rose 15 percent while home loans grew 13 percent. Advances to large, mid-sized corporates and SMEs rose 1.8 percent.

The bank will target credit growth of 10 percent in the current financial year, Kumar told reporters.

Deposits rose 4.68 percent. The ratio of low-cost current account and savings account (CASA) deposits improved to 45.68 percent from 44.40 percent in March last year.

Unlike other government owned lenders, the bank’s capital position remains strong. SBI had a capital adequacy ratio of 12.6 percent and core equity tier-1 (CET-1) ratio of 9.68 percent.

Market Reaction

SBI’s shares rose as much as 3.86 percent to Rs 253 per share after the earnings announcement. The stock has fallen 21.6 percent in 2018 compared with a 26.3 percent decline in the NSE Nifty PSU Bank Index.

Watch the full interview with SBI’s Rajnish Kumar here.