Mumbai: State Bank of India reported lower-than-expected fiscal second quarter profits on Friday after the lender set aside more money to cover the risk of defaults on non-performing assets. However, a deceleration in new additions to bad loans and robust operating profit growth cheered investors who drove up its shares 6%.
India’s largest lender said its net profit fell 37% to Rs1,581.55 crore compared to Rs2,538.32 crore a year ago. Fifteen analysts polled by Bloomberg had forecast a profit of Rs2,628.50 crore.
The results are not comparable from the year-ago period because SBI merged its six associate banks with effect from 1 April. On a like-to-like basis (including last year’s numbers for associates), SBI had made a loss of Rs557 crore a year ago.
Again, on a like-to-like basis, pre-provisioning operating profit (after adjusting for one-time gain of Rs5,440 crore from the sale of its stake in its life insurance subsidiary SBI Life) was up 11.4% from a year ago indicating some traction in its operations.
SBI shares rose 6.2% to Rs333.20 at the close of trading on a day the benchmark Sensex rose 0.19% to 33,314 points.
The lender reported fresh addition to gross non-performing assets of Rs9,026 crore compared to Rs26,249 crore in the quarter ending June. Of these slippages, around Rs4,538 crore was from the corporate sector and 81% of this came from its so-called watchlist of stressed accounts. The list at the end of June quarter stood at Rs21,288 crore.
The bank wrote off Rs9,258 crore of loans during the September quarter. That pushed up the total number of written-off accounts for the first half of the fiscal to Rs22,434 crore compared to Rs12,461 crore a year ago.
At the end of September, gross non-performing loans stood at Rs1.86 trillion compared with Rs1.88 trillion three months earlier. Its gross bad loan ratio stood at 9.83% compared to 9.97% at the end of June.
The “sharp fall in fresh slippages has positively surprised us. (We) were projecting slippages of Rs15,500 crore for the quarter. Further, the new management chose to strengthen the balance sheet over profitability by increasing the provision coverage ratio,” said Ashutosh Mishra, senior research analyst, Reliance Securities.
Despite lower addition to bad loans, provisions and contingencies surged 142.3% to Rs19,137.43 crore from Rs7,896.72 crore a year ago.
SBI’s provision coverage ratio improved to 65.1% from 60.79% in the June quarter. The management highlighted that the bank made full provision of 50% of total exposure to the first set of cases referred by the Reserve Bank of India for bankruptcy proceedings and also set aside much of the provisions against the central bank’s second list which will soon be referred to National Company Law Tribunal (NCLT).
“We enhanced loss absorption capacity this quarter. This is in line with the move to international accounting standards. The strategy is to adopt loss provisioning as far as NPAs are concerned. The cushion from stake sale was used to increase provision coverage ratio,” said Rajnish Kumar, SBI chairman.
However, advances growth remained muted at 0.95% year-on-year. The loan book at the end of the September quarter stood at Rs 18.92 trillion. The management expects the loan book to grow by 5-6% this financial year.
“We are not in the game of chasing credit. We will look at those commercial projects which will give us the desired return on assets,” Kumar added.