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State Bank of India, the country’s largest bank, posted its second consecutive drop in quarterly profit on provisioning for losses in its overseas treasury book and a sharp rise in employee pensions.
Net profit fell 13.31 per cent to Rs 3,241 crore on a standalone basis for the first quarter ended June.
Fresh loans worth Rs 13,766 crore slipped in the non-performing category during the period, just a shade lower than the Rs 14,043 crore in the December and March quarters put together.
The bank’s gross non-performing assets (NPAs) have risen by a staggering Rs 9,702 crore in the June quarter compared to March-end, above analysts’ expectations of around Rs 6,000 crore. Total bad loans were 5.56 per cent of the bank’s total book, up from 4.99 per cent in the year-ago period.
Most public sector banks, including Bank of Baroda, Punjab National Bank and Bank of India, also posted a spurt in bad loans.
Despite a 16 per cent loan growth, SBI’s net interest income (NII) grew only 3.48 per cent, exerting pressure on margins. Arundhati Bhattacharya, managing director and chief financial officer, said the growth in NII was marginal, as the bank had cut lending rates for small enterprises and automobile loans. Also, it had to reverse the interest income in loan accounts declared as NPA.
Net profit fell 13.31 per cent to Rs 3,241 crore on a standalone basis for the first quarter ended June.
Fresh loans worth Rs 13,766 crore slipped in the non-performing category during the period, just a shade lower than the Rs 14,043 crore in the December and March quarters put together.
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The bank’s gross non-performing assets (NPAs) have risen by a staggering Rs 9,702 crore in the June quarter compared to March-end, above analysts’ expectations of around Rs 6,000 crore. Total bad loans were 5.56 per cent of the bank’s total book, up from 4.99 per cent in the year-ago period.
Most public sector banks, including Bank of Baroda, Punjab National Bank and Bank of India, also posted a spurt in bad loans.
Despite a 16 per cent loan growth, SBI’s net interest income (NII) grew only 3.48 per cent, exerting pressure on margins. Arundhati Bhattacharya, managing director and chief financial officer, said the growth in NII was marginal, as the bank had cut lending rates for small enterprises and automobile loans. Also, it had to reverse the interest income in loan accounts declared as NPA.
Net interest margin (NIM) declined to 3.16 per cent in the June quarter from 3.57 per cent in the year-ago quarter. SBI Chairman Pratip Chaudhuri said the bank expects a NIM of 3.5-3.6 per cent in FY14.
The bank’s consolidated profit was down 11.8 per cent to Rs 4,299 crore for the quarter ended June.
While loans toward agriculture, retail, and small and medium enterprises formed 50 per cent of the fresh slippages, the banks has also seen slippages from the large corporate segment. However, the bank expects significant recovery from its agriculture and retail during the current quarter.
Chaudhuri said a sharp rise of 33.9 per cent in staff expenses, especially for pension, and mark-to-market provision on bonds on its overseas book have impacted profitability.
“No industrial revival is expected in FY14. SME and mid-size corporate segments would continue to remain under pressure,” Chaudhuri said. The lender also set aside Rs 576 crore as provision for investment in operations abroad. The hardening of yields (an 80 basis points’ rise in global market) meant a drop in the value of investments, he said.
“The longevity of employees has increased from 75 years to 81, according to actuarial calculations. The bank made an extra provision of Rs 600 crore for pensions. The total bill on pension was pegged at Rs 2,400 crore for FY14. It also made provision for a prospective wage increase,” Chaudhuri said.
Saday Sinha, banking analyst at Kotak Securities, said: “Although headline numbers came largely in line with our expectations, high fresh slippage impacted the asset quality performance. Sequentially, gross NPAs and net NPAs rose sharply — 19.0 per cent and 36.6 per cent, respectively — while the coverage ratio declined by 600 basis points. Although the stock has corrected sharply in recent months, we believe continued asset quality pressure is likely to affect the stock performance.”
While NPAs have increased, provisions declined which were at Rs 2,866 crore, against Rs 4,181 crore in the same period last year. This lead to a deterioration in provision coverage ratio (PCR) to 60.6 per cent in June 2013 from 64.3 per cent a year ago. The tally of restructured loans stood at Rs 44,811 crore. The bank expects a debt restructuring pipeline of Rs 10,000 crore over the next few quarters.
Last week, rating agency Standard and Poor’s warned that the bulging stress loan kitty and drag on earnings growth has made chances of recovery bleak. “Deteriorating asset quality and earnings are likely to constrain the credit profiles of Indian banks over the next two years,” S&P said.
