SBI asset quality to deteriorate further: Morgan Stanley

The brokerage estimates new gross NPLs at Rs 5,000 cr and net NPLs at Rs 3,000 cr

State Bank of India is expected to report a higher than anticipated deterioration in asset quality in its first quarter of FY13 numbers.

Morgan Stanley after meeting with the bank management said that new gross and net non-performing loans (NPL) are expected to be Rs 5,000 crore and Rs 3,000 crore respectively. This is higher than the earlier expected gross NPL of Rs 4,000-4,500 crore. In fact, the new net NPL level is at 50 per cent of the expected level of Rs 6,000 crore for the entire financial year 2012-13. Restructuring during the quarter will be around Rs 2,000-2,500 crore.

The SBI management expects its net interest margin (NIM) to remain flat in the first quarter and come down by 10-15 basis points to 3.7-3.75 per cent. Loan growth is expected to be maintained at 15 per cent.

Morgan Stanley feels that asset quality pressure will intensify going forward but the flow of bad loans will be lumpy. With the broking firm expecting India’s GDP to slow down to six per cent, SBI will face additional pressure on its loans. The recent capital infusion and cuts in cash reserve ratio should support NIMs going ahead.

The bank has assessed its total capital requirement at Rs 98,000 crore (for Basel-III) over the next six years. While the requirement will be low in the next three years, the demand will start kicking only from FY15 onwards.

Its international book is well-hedged with nearly 80 per cent of its borrowers having a currency hedge either naturally or explicitly. The remaining funds are with large companies where, SBI says, the risks of default are much lower. However, growth in lending is expected to slow down as lending rates are expected to remain high.