SBI Group Q1 net dips 78%, but says worst of NPAs behind it

State Bank of India today reported 78 per cent plunge in consolidated net profit at Rs 1,046 crore in April-June on higher provisions for bad loans at its five associates, though asset quality seemed to be improving.
Total income during the three-month period rose to Rs 69,415 crore against Rs 63,164.5 crore in April-June, 2015-16.
On a standalone basis, net profit of the state-run bank declined at a much lower rate of 32 per cent to Rs 2,521 crore from Rs 3,692 crore a year ago.
"The worst is behind us when it comes to stressed assets. But let me warn you that the recovery will be slow and staggered as all those accounts marked in the watch list display stress. But I don't think we will be revising upwards the watch list of Rs 31,000 crore going forward," Chairperson Arundhati Bhattacharya told reporters here.

She went on to add that "we are still looking at resolution picking up pace. Resolution has started but they have not picked up pace to that extent and specially in respect of the larger accounts, we really need to see much more movement. But that will happen over a period of time."
Bhattacharya attributed the lower numbers to the massive provisioning the five subsidiary banks have done in the quarter ahead of their merger with the parent towards the end of the year. "Whether the stress is in their books or in the combined entity's it makes the same impact. So they made additional provisions to match the parent's level provisioning ahead of the merger."

The market lapped up the improvement in asset quality and the bottomline numbers which were as per the market's estimate and also the guidance. SBI counter rallied over 9 per cent intra-day on the BSE, one of the best gains in many years.

Gross non-performing assets rose to 6.94 per cent to Rs 1,01,541 crore in the first quarter from 4.29 per cent or Rs 56,421 crore, while net NPA rose to 4.05 per cent to Rs 57,421 crore as against 2.24 per cent, or Rs 28,669 crore.
Accordingly, total provisions jumped up by 55 per cent to Rs 8,533 crore from Rs 5,510 crore. Loan loss provisions was at Rs 6,340 crore and standard asset provisions stood at Rs 917 crore.

In the last quarter of FY2015-16, the bank had put up accounts worth Rs 31,000 crore on 'special watch list' following the AQR (Asset Quality Review) of the Reserve Bank.
Bhattacharya said there are no additions to the watch list and it has been retain at Rs 31,000 crore.
"The kind of spike in NPAs we saw last quarter, we
definitely do not expect that going forward. When the resolution process starts we would definitely see the residual numbers looking much better," Bhattacharya said.
In the last quarter of fiscal 2015-16, fresh slippages of the bank were around Rs 30,000 crore. Fresh slippages during the reporting quarter jumped to Rs 8,790 crore from Rs 7,318 crore a year ago.

"Our slippages are still elevated but over a period of time this will normalise. I would not put that period of time beyond the next three quarters," she added.
Out of the Rs 8,790 crore of fresh slippages, Rs 4,122 crore were from the retail assets and Rs 987 crore from the international banking group.
Slippages in the corporate sector were Rs 3,681 crore, of which Rs 2,950 crore has come from the watch list. The bank has recovered Rs 1,647 crore of loans while it upgraded Rs 1,169 crore during the quarter.
The lender sold only Rs 77 crore of loans to asset reconstruction companies in the quarter and did not do any S4A scheme as it is being still worked out. The bank invoked SDR provisions in 22 accounts worth Rs over 18,000 crore out of which three have slipped into NPAs again.

Deposits increased 10.46 per cent to Rs 17,82,371 crore from Rs 16,13,545 crore and advances rose 11.41 per cent to Rs 14,63,690 crore from Rs 13,13,735 crore. The bank had set a loan growth target of 12 per cent for this fiscal.
Bhattacharya said SBI Life Insurance will be listed in the next 2-3 years.
On the SBI Card JV, she said the bank will not be buying out its partner GE Capital but expressed the hope that they will be able to find a buyer by September.
State Bank of India has performed better than other state-run lenders in managing its bad loans. It is also better placed on NPA front due to a higher share of low-cost deposits, a comfortable capital ratio and improving operating profitability, according to a recent Goldman Sachs report.

Emkay Research said the numbers are as per its expectations and the stability in the asset quality has been better than the Street view and it therefore has an 'accumulate' call on the SBI stocks.
The bank's scrip ended at Rs 243.20 apiece, up 7.16 per cent on the BSE whose benchmark Sensex rallied 1.05 per cent.