But the results filed by the bank for the quarter ended September, 2016 have just denied it a place in history of being a consistently profit making bank since its inception in 1941 or from 1956 when it was first taken over by Reserve Bank of India (RBI).
SBH was the central bank of State of Hyderabad, handling its currency-Osmania Sikka and public debt apart from the functions of commercial banking prior to the princely state's accession into the Indian Union.
Largest among the associate banks, SBH, with a total business of Rs 2.53 lakh crore, has reported a whopping Rs 776.64-crore net loss in the second quarter of the current financial year. This was due to steep increase in the incremental provisioning towards NPAs as the SBI asked the bank to keep 'inherent weakness in common loans and advances' also in mind when it comes to provisioning.
The SBH officials say that this was the first time that the bank has ever reported losses in its history.
The quarterly loss was too big considering the fact that it had reported a net profit of Rs 1,064.93 crore in the financial year 2015-16. During the first quarter ended June, 2016 its net profit fell to as low as Rs 28 crore from Rs 251 crore in the year ago period as provisioning towards NPAs rose to Rs 892 crore from little over Rs 300 crore in the corresponding previous quarter. The provisioning requirement ballooned to Rs 2,266.7 crore by the time it concluded the second quarter ending September, 2016.
"SBI advised to make appropriate provisioning on a prudent basis based on the inherent weakness in common loans and advances in line with the lower IRAC (Income Recognition, Asset Classification) status in SBI Group as a whole. The bank has reclassified such common accounts which has resulted in increase of NPAs by Rs 2,623.90 crore, incremental provision of Rs 2052 crore and interest reversal of Rs 132.67 crore and its consequential impact on all ratios," SBH managing director Santanu Mukherjee said in a filing.
Sources in the bank said though they can not rule out some fresh slippages during the quarter, the provisioning made was not entirely on account of these slippages. "Based on the SBI directions the bank had to make provisioning even towards standard assets of some accounts, which had already turned NPAs or substandard assets in SBI books,"sources said.
Consider a scenario where a company that has received loan from a consortium of banks- which includes SBI and its associate banks- kept loan payment up to date with regard to SBH but defaulted on repayment to SBI. The bank was asked to classify loans in all such cases as NPAs for the sake of provisioning because post merger those loans will have to be reclassified as NPAs by the SBI as they become two loans of a single account, according to sources.
In its statement the SBH management said that the net loss was on account of higher loan loss provisioning while the operating profit grew by 36.30 percent at Rs 1,101 crore as compared with Rs 807.8 crore in the corresponding previous quarter.
These numbers may not matter much to SBH as it become non-existent in the next few months. According to the bank officials, the SBI is likely to start reporting the financial results together with that of the merged entities as a single bank from the next financial year onwards. The other four associate banks to be merged with SBI are State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Patiala and State Bank of Travencore.
