SBI differs, says already following norms.
The Reserve Bank of India (RBI) has counselled State Bank of India (SBI) to maintain higher-than-mandated provisioning for bad loans, but the country’s largest lender seems to have shrugged off the central bank’s advice on the grounds its provisioning practices are in keeping with regulations.
According to banking industry sources, RBI Deputy Governor Shyamala Gopinath, who is on the board of SBI, has recently written a letter to Chairman O P Bhatt suggesting a higher provision-coverage ratio. A senior official in SBI confirmed the bank has received the letter.
SBI’s provision-coverage ratio slipped to 38 per cent in January-March from 42 per cent a year ago. Gopinath suggested this ratio should be at least 50 per cent for SBI. Other large state-owned banks have a provision-coverage ratio in the range of 70-80 per cent.
| PERFORMANCE METRICS State Bank of India | |||
| (Rs crore) | Year ended March | % Chg | |
| 2008 | 2009 | ||
| Deposits | 5,37,404 | 7,42,073 | 38.08 |
| Advances | 4,16,768 | 5,42,503 | 30.17 |
| Total Assets | 7,21,526 | 9,64,432 | 33.67 |
| Total Income | 57,645 | 76,479 | 32.67 |
| Net Profit | 6,729 | 9,121 | 35.55 |
| Net NPA | 7,424 | 9,552 | 28.66 |
| Net Npa To | 1.78 | 1.76 | |
| Net Adv. (%) | |||
| Standalone figures | |||
Provision-coverage ratio is the ratio of provisioning to gross non-performing assets and indicates the extent of funds the bank has kept aside to cover loan losses. However, top SBI officials maintain since most of the non-performing assets are recent ones, the extent of provisioning is less than on old loans.
“The less the Non Performing Asset (NPA) age, the less is the requirement of provisioning. So a sub-standard NPA will have less provisioning need than a doubtful asset,” Managing Director Sanjay Kumar Bhattacharyya had said May 9. Banks’ NPAs are classified as sub-standard, doubtful, and loss.
An asset is sub-standard if the NPA is for up to one year, doubtful if it has remained so for more than one year, and it is a loss asset if the bank, auditors or RBI considers the loan uncollectible. As per RBI norms, a bank has to provide 10 per cent for sub-standard assets, at least 20 per cent for doubtful assets, and 100 per cent for loan accounts that have turned into a loss.
Banking industry sources say SBI has not given much weight to the central bank’s view on higher-than-mandated provisioning because of the obvious implications on profitability and market valuation. Conservative banks typically tend to voluntarily maintain higher-than-regulatory-prescribed provisioning when their profits increase.
On March 25, RBI had issued a notification saying banks can voluntarily provide more than mandated for their NPAs. If banks provide higher amount on their NPAs, they can deduct the entire provisioning amount from gross NPAs to arrive at net NPAs.
As on March 31, SBI’s gross NPA was 2.84 per cent , or Rs 15,589 crore, and net NPA was 1.76 per cent, or Rs 9,552 crore. The banking behemoth’s NPA provisioning went up a marginal 10 per cent to Rs 1,179 crore in the last quarter of 2008-09 (April-March). Had SBI maintained 50 per cent provision coverage ratio, its net NPA would have come down by Rs 1,757 crore and its operating profit would have dropped to Rs 3513 crore in the quarter ended March, analysts said.
Accordingly, its net profit would have been lower at around Rs 1,300-1,500 crore compared with the Rs 2742 crore the bank reported in January-March end.
