SBI: Profit rises on lower costs, higher margins

At Rs 13,500 crore, accretion of impaired loans is lower than quarterly run rate of Rs 16,500 cr

State Bank of India (SBI), the country's largest bank, reported better-than-expected numbers for the June quarter, as margins improved, provisioning declined and operating expenditure remained stable. While the Street was expecting the bank to report a decline in net profit, the bank has managed to surprise the former on that front, as well as asset quality. Net interest income grew 15 per cent over a year to Rs 13,252 crore and fee income increased 11 per cent to Rs 2,837 crore. Other income declined five per cent, lower than analysts' estimate. The domestic net interest margin improved 10 basis points to 3.54 per cent, resulting in a 3.3 per cent growth in net profit. Operating income rose 9.5 per cent to Rs 15,986 crore.

Analysts were expecting profit to decline in the quarter on lower other income. During the comparable quarter last year, SBI had reported Rs 1,200 crore in treasury gains. However, other income declined only five per cent, which has shored up profitability. Additionally, volatile operating expenses grew a modest 3.3 per cent, while staff expenses rose 0.45 per cent. The provisioning costs went up 22 per cent, after factoring in the investment depreciation write-back of Rs 552 crore.

On slippage (accretion of impaired loans during the quarter), too, the bank did surprise. Sequentially, the slippages are up 25 per cent, but Saday Sinha of Kotak Securities believes it is better to look at the run rate during the past few quarters. In the June quarter, SBI reported slippages of Rs 9,932 crore and along with restructured assets, the total fresh impairment stands at Rs 13,500. The average run rate of both these numbers has been Rs 16,500 crore, which makes April-June a better quarter. Sinha says the upgradation and cash recovery has also been 46 per cent of the gross slippage. The bank is trading at an adjusted book value of 1.1 times. Analysts expect asset quality issues to improve once growth recovers, which might improve the return ratios.