SBI back in black; Q2 net profit at Rs 9.44 bn on higher interest income

SBI chairman Rajnish Kumar in a media conference call said bank is back in profit after three quarters

State Bank of India (SBI), the country's largest lender, made a profit in the second quarter ended September 2018 after reporting losses in the three previous quarters.

Its net profit in the second quarter stood at Rs 9.44 billion on higher net interest income and lower provisions for bad loans. When compared to the same quarter in FY18, however, net profit was down by 40.3 per cent. 

It had posted net profit of Rs 15.81 billion in Q2FY18. Tax expenses stood at Rs 8.67 billion in Q2FY19 as against tax credit of Rs 7.19 billion in Q2FY18.

It had reported a loss of Rs 48.75 billion in the first quarter ended June 2018.

SBI Chairman Rajnish Kumar, in a media conference call, said profits would be bigger in future. The bank had to make a mark-to-market (MTM) provision of Rs 17 billion for bond portfolios and Rs 9 billion for gratuity in the second quarter, the chairman added. 

The bank's asset quality profile showed improvement on fall in non-performing assets (NPAs) and enhancement in the provision coverage ratio (PCR) in the second quarter. 

"We are in complete control of the demon called NPA," he said. The SBI stock closed 3.45 per cent higher at Rs 295 per share on the BSE.

Its net interest income (NII), which is revenue minus interest expenses, increased by 12.48 per cent from Rs 185.86 billion in Q2FY18 to Rs 209.06 billion in Q2FY19.

The net interest margin (NIM) for domestic operations improved to 2.88 per cent in September 2018 from 2.59 per cent in September 2017. However, it declined by seven basis points sequentially due to interest income booked on National Company Law Tribunal resolutions in Q1FY19.

Other income, comprising revenues from treasury operations, fees, commissions, etc declined by 41.46 per cent to Rs 93.75 billion in the second quarter of the current fiscal year from Rs 160.17 billion in Q2FY18. Other income was down mainly on account of decline in trading income. Besides trading income, exceptional items influenced the performance.

"SBI reported a profit driven by a healthy margin and one-off gains of Rs 15.6 billion from the stake sale in SBI General Life Insurance (gains of Rs 4.7 billion), and a 26 per cent stake sale in the Merchant Acquiring Business (MAB) to a subsidiary (gains of Rs 10.9 billion). The bank skipped the regulatory ageing provisioning on Essar Steel's impending resolution. The bank would have reported a heavy loss," said Anand Dama and Shreesh Chandra, analysts at Emkay Global, in a note.

The bank had reported exceptional income of Rs 54.36 billion because of stake sale in SBI Life in the year-ago quarter.

Net NPAs declined to 4.84 per cent as of September 30, 2018, from 5.29 per cent as of June 30, 2018. Net NPAs stood at 5.43 per cent at the end of September 2017. The provision coverage ratio (PCR), including those for written-off accounts, increased to 70.74 per cent in Q2FY19 from 69.25 per cent as of June 30, 2018. The PCR was 65.11 per cent at the end of September 2017 (Q2FY18).

Its domestic advances registered a growth rate of 11.11 per cent from Rs 16 trillion in Q2FY18 to Rs 17.78 trillion as of September 2018. Retail credit, comprising personal loans, agricultural loans and lending to small and medium enterprises rose by 8.91 per cent to Rs 10.33 trillion at the end of September 2018. Corporate credit also saw traction with 14 per cent growth (year-on-year) at Rs 7.45 trillion. 

Deposits grew by 7.02 per cent from Rs 26.23 trillion in September 2017 to Rs 28.07 trillion at the end of September 2018.

As for capital requirements, the SBI chairman said the bank had the approval to raise up to Rs 200 billion.