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State Bank of India (SBI), the country’s largest lender, has reported a 10.25 per cent growth in net profit at Rs 3,692 crore for the quarter ended June 30, compared to Rs 3,349 crore in the year-ago period.
The growth in profit comes on the back of a 20 per cent growth in non-interest income led by a handsome gain in treasury profits.
While the net profit was higher than a Bloomberg estimate, lower net interest income (NII) growth and pressure on margins seem to have disappointed investors as the stock ended five per cent down to close at Rs 269.30 on the BSE on Tuesday.
NII grew only 3.6 per cent to Rs 13,730 crore and net interest margin came down to 3.29 per cent, compared to 3.54 per cent a year ago, owing to the lack of credit demand that impacted yield on advances by 17 basis points (bps). On the other hand, cost of deposits stayed flat, on a year-on-year basis.
SBI said it has benefited from improving economy, which is indicated by the sharp fall in slippages from the mid corporate accounts that have been a drag on the lender’s profitability in the past few years.
“As you all know, when the economy goes into a tailspin, the first accounts that get hit are the SMEs (small and medium enterprises). They are also the last one to recover. Therefore, it clearly shows the trajectory that the economy is taking. That fact that the economy is slowly recovering is absolutely clear from these numbers,” said Arundhati Bhattacharya, chairman, SBI.
In the mid-corporate space, non-performing assets (NPA) declined to Rs 21,468 crore from Rs 24,632 crore seen a year ago.
Bhattacharya added that the slippages to the NPA category has been coming down except for the farm sector, retail credit and SMEs. “Retail and agricultural NPAs are due to seasonal factors as it happens in the first quarter,” said Bhattacharya.
Fresh impairment — gross slippage and restructuring — was at Rs 11,250 crore during the first quarter, much less than the average of the previous four quarters, which was Rs 13,500 crore.
The gross NPA of the bank stood at Rs 56,421 crore as of June-end, which is 4.29 per cent of gross advances compared to 4.95 per cent a year ago. However, there was a marginal increase compared to the previous year by 4 bps.
“NII growth came marginally below our expectations on margin contraction. However, asset quality remained stable in line with our expectations. SBI is well capitalised (Tier-I ratio at 9.6 per cent), and fares better than most of the other PSU banks and, hence, we have positive stance on the stock, which is proxy to Indian economy,” said Saday Sinha, analyst with Kotak Securities.
SBI will continue to have a cautious stance on extending credit and will only step up when the economic recovery stabilises.
“Again we refused to be stampeded into the wrong kind of growth. I think we need to understand very clearly the kind of growth we will look at is the kind of growth that will stay with us. There is no point in growing suddenly and take a hit few years later. That is the reason we have been extremely careful about the way we grow,” said Bhattacharya.
As on June 30, the lender’s credit growth was a mere 6.6 per cent, while deposit growth was 13.7 per cent. SBI said for the full year, the bank is retaining its loan growth projection at 14 per cent, while deposits are expected to grow 14-15 per cent.
