SBI’s asset quality numbers warrant a closer look

Country’s largest lender, State Bank of India (SBI) has received applications for loan restructuring to the tune of Rs 6,495 crore in October, the bank said while announcing its second quarter results. Overall restructuring numbers could go up as customers have time till December to apply for the one-time loan recast for Covid-linked stressed assets.

The total estimated slippages in Q2 (July-September) is Rs 14,388 crore, the bank said. But, if one includes the loans that are not tagged as bad following a recent interim Supreme Court order, the total fresh slippages in Q2 would stand at over Rs 17,144 crore.

Overall gross NPAs also have stayed at elevated levels if one takes into account the portion of bad loans excluded under Supreme Court’s interim order.

In percentage terms, SBI has reported its gross non-performing assets (GNPAs) at 5.28 per cent in the September quarter. But with proforma slippages (NPAs excluded under Supreme Court’s interim order), the figure is 5.9 per cent. If one looks at this figure sequentially, this is higher than 5.4 per cent reported in the April-June quarter.

As mentioned above, SBI has seen a marked increase in the chunk of loans where there is repayment overdue. In banking parlance, these are called the special mention accounts (SMA) category. Loans that are overdue between 31-60 days fall under the SMA-1 category while loans overdue 60-90 days fall in the MSA-2 category.

In SBI’s case, the SMA-1 category loans have gone up from Rs  1,471 crore in Q1 to Rs 8,597 crore in the second quarter while SMA-2 loans have gone up from Rs 279 crore to Rs 3,389 crore. Overall, SMA 1 and 2 have increased from Rs1,750 crore to Rs11,986 crore. Fresh slippages of SBI has escalated in certain segments on a quarter-on-quarter basis. In the SME (small and medium enterprises) portfolio, fresh slippages in Q1 was Rs 990 crore which has risen to Rs 5,078 crore in Q2.

These loans will be watched closely going ahead.

Fresh corporate slippages in Q2 rose to Rs1,019 crore from Rs 213 crore from Q1 and that in agriculture went up to Rs 9,045 crore from Rs468 crore on a sequential basis. The bank has disclosed that it has extended the moratorium to Rs 8.2 lakh crore loans as on August 31 or about 34 per cent of the loan book. This is arguably one of the highest moratorium loan figures among large PSBs. It is critical to watch how these loans will perform going ahead. Not all of these loans will qualify for the one-time loan recast. There could be fresh NPAs emerging from the remaining chunk.

Like most of the large lenders which have announced Q2 results, SBI has also focussed on the retail loan book. On a quarter-on-quarter basis, retail loans have grown by 4.88 per cent whereas the corporate book has shrunk by 2.69 per cent. Retail loans are safer and much less risky compared to lumpy corporate loans. At the time of a crisis, this is a logical shift.

Covid-19 has already shown its impact on SBI's asset quality. SBI has made COVID provisions worth Rs 7,091 crore, which analysts believe is a bit on the lower side. The deadly pandemic has impacted the ability of both corporate and retail customers to make repayments.

Moving ahead, the Covid trajectory will dictate the health of the banking sector. The one-time restructuring announced by the RBI for stressed borrowers can offer temporary relief. If the economic recovery takes too long, banks will see a surge in their bad loan levels.