The big daddy of banking, State Bank of India (SBI), is back in business. India’s largest lender has announced a stunning set of fourth quarter numbers — its profit after tax in this period is a record-breaking Rs 4,050 crore, up 24 per cent sequentially. The net profit figures are not comparable on a year-on-year basis. The bank’s chairman, Pratip Chaudhuri, says both Q4 and full year profits (Rs 11,700 crore) are records, “even though we did not set out to do it, but it has happened”.
That’s not the only happy coincidence, the other being a substantial improvement in asset quality. After four quarters of deteriorating asset quality, slippages (fresh accretion of bad loans) have dramatically slowed, even as the rest of the industry continues to grapple with poor asset quality.
SBI’s fresh slippages in Q4 have come in at Rs 4,300 crore, which is significantly below market expectations of Rs 6,000-8,000 crore. However, the icing on the cake, as one analyst puts it, is the recovery and upgradation of other doubtful assets. According to ICICI Securities, that incremental slippage is nearly 50 per cent lower than in Q3 FY12 is a major positive surprise.
In comparison, the Q4 performance of the country’s second largest bank, Punjab National Bank, was marred by deteriorating asset quality across the board, as is the case with other state-owned banks. During the quarter, the bank saw fresh slippages grow 4.3 per cent to Rs 2,800 crore.
As a result of improving asset quality, SBI’s share of bad loans as a percentage of total advances also improved. Gross non-performing assets dipped to 4.44 per cent from 4.61 per cent in the third quarter of FY12. Evidently, this has resulted in lower provisioning requirements in the quarter, which has also helped boost profits.
While most public sector banks have seen their net interest margin (NIM) come under some stress, as deposit growth is not keeping pace with credit growth, SBI has managed to retain its overall NIM at 3.89 per cent sequentially.
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Vaibhav Agarwal of Angel Broking says, “To an extent, SBI has already taken steps to improve its margins in the past quarters and also taken the brunt of asset quality issues and regulatory provisions.”
While the result is good, the market is wondering how SBI has managed to break out of the vicious circle of bad loans, which its peers haven’t. No doubt, the bank has lower exposure to aviation and state electricity boards, but the stress in asset quality is rather broad-based now. The other question is whether or not the bank will be able to keep asset quality in check as it has in this quarter.