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SBI Q3 Results: Profit Beats Estimates; Asset Quality Improves

State Bank of India’s third-quarter profit beat estimates as its asset quality improved and provisions fell.

Rajnish Kumar, chairman of State Bank of India Ltd., speaks during a panel session on day three of the World Economic Forum (WEF) in Davos, Switzerland. (Photographer: Jason Alden/Bloomberg)
Rajnish Kumar, chairman of State Bank of India Ltd., speaks during a panel session on day three of the World Economic Forum (WEF) in Davos, Switzerland. (Photographer: Jason Alden/Bloomberg)

State Bank of India Ltd.’s third-quarter profit beat estimates as its asset quality improved and provisions fell.

Net profit rose 41.2 percent year-on-year to Rs 5,583.36 crore in the three months ended December, India’s largest lender said in an exchange filing. That’s higher than the Rs 5,142-crore consensus estimate of analysts tracked by Bloomberg.

Net interest income, or core income of the bank, rose 22.4 percent to Rs 27,778.79 crore, compared to the Rs 24,140-crore estimate.

SBI’s asset quality improved as its gross non-performing assets fell 1.2 percent sequentially to Rs 1,59,661.19 crore. The gross NPA ratio fell to 6.94 percent from 7.19 percent. Net NPA stood at 2.65 percent versus 2.79 percent.

Considering the challenges for the industry, the quarter for SBI has been strong, Chairman Rajnish Kumar said in a press conference. “There has been some setback on the large slippage but recoveries from Essar Steel have helped.”

WATCH | Rajnish Kumar Review SBI's Q3 Performance

Provisions for bad loans fell 45 percent quarter-on-quarter to Rs 7,252.90 crore. Slippages for the quarter stood at Rs 16,525 crore compared with Rs 8,805 crore in the previous three months.

In particular, Kumar said, there was one large housing finance company which was recorded in the slippages. He said SBI had a total loan exposure of Rs 7,100 crore and a bond exposure of about Rs 2,000 crore. The bank has provided 29 percent against the said housing financier’s dues.

“We will provide further in March quarter, depending on progress of the Reserve Bank of India-initiated resolution process,” Kumar said, adding that he doesn’t expect slippages to exceed Rs 5,000-6,000 crore in the January-March quarter.

As far as rest of the slippages are concerned, the bank saw nearly Rs 3,000 crore worth bad loans coming from its agriculture loan book. According to Kumar, the total slippages from the agriculture portfolio in the three quarters this financial year has been around Rs 11,000 crore, mostly coming from states which have announced farm loan waivers.

“The fourth quarter is usually good for agriculture loan recovery. We are also awaiting some clarifications from the Reserve Bank on how to treat the bad loans in the sector. Once that comes in, we believe that the slippages will stabilise,” Kumar said.

Kumar said the provisioning requirement in the quarter ending March will come down substantially.

The bank has over Rs 1 lakh crore worth loans in its sanctioned pipeline and is likely to report higher credit growth in the new financial year, once companies start drawing down on their limits. During the October-December period, the corporate loan book narrowed by 0.48 percent year-on-year.

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SBI’s Q3 Earning Highlights:

  • Recoveries and upgrades rose 87.7 percent sequentially to Rs 13,553 crore.
  • Advances grew 7.4 percent year-on-year and 2.5 percent quarter-on-quarter.
  • Deposits grew 9.9 percent year-on-year and 2.57 percent quarter-on-quarter.

Management Commentary

Rajnish Kumar, chairman, SBI said:

  • It has been a strong operating performance for SBI this quarter.
  • In terms of business performance, we have seen strong growth in deposits and retail loans.
  • Corporate loan growth is the only discordant note this quarter for the bank.
  • We will be moving to lower corporate tax rate in March 2020.
  • There has been a huge improvement in SMA-2 accounts.
  • No big loan in sight which is likely to slip.
  • Agri slippages and partly on SME are slightly elevated.
  • Credit cost will continue to be 70 percent of slippages.
  • Seeing elevated NPA in agri segment primarily due to loan waivers. But we expect this to turn around soon.
  • Expecting some clarification and guidelines from the RBI on agri NPA.
  • Sanctions pipeline for working capital loans in corporate lending are strong.
  • This should help us push up credit growth but credit growth going beyond 10 percent looks difficult this year.

Shares of the state-run lender rose as much as 3.5 percent to Rs 321.70 apiece after the results were announced. The stock gained 5.69 percent over the last 12 months compared with a 12.5 percent rise in the Nifty Bank Index.

Watch | How SBI fared in the December quarter.