SBI stock rises despite 32% fall in profit

Rs 14,384-cr capital boost from realty re-valuation

The country’s largest bank State Bank of India (SBI) reported a 32 per cent drop in net profit in the June quarter, in line with estimates.

SBI’s shares rose 7.1 per cent to Rs 243 at the close of trading on the BSE as the results showed a lower than expected sequential rise in bad loans.

SBI, which accounts for over a fifth of India’s bank loans and deposits, said standalone net profit was Rs 2,521 crore for the three months to June 30 against Rs 3,692 crore reported in the same quarter a year earlier.

 
Analysts on average had expected a net profit of Rs 2,540 crore, according to data compiled by Thomson Reuters. A sharp rise in SBI’s provisions for bad loans and slow growth in net interest income impacted its bottom line. The net interest income rose by 4.2 per cent to Rs 14,312 crore during the quarter from Rs 13,732 crore in the same period a year ago.

SBI Chairman Arundhati Bhattacharya said net interest income was affected by a drop in lending rates and rising bad loans. The bank’s net interest margin declined to 2.83 per cent from 2.99 per cent in the same quarter last year.

Other income, comprising treasury, commissions and fees, rose to Rs 7,335 crore from Rs 5,087 crore in June 2015. Profit from sale of investments and recovery from written-off accounts also boosted other income.

The bank's asset quality remained under pressure, reflected in the rise in gross non-performing assets to Rs 1,01,541 crore in June (6.94 per cent) slightly up from Rs 98,173 crore (6.5 per cent) in March. SBI's gross non-performing assets were Rs 56,420 crore (4.29 per cent) a year ago.

The bank reined in estimates of loans that were at high risk of slippage to Rs 31,000 crore. During the quarter, Rs 3,000 crore from the watch list slipped into bad loan category. SBI also started including in its watch list weak loans in its international book from this quarter.

The provisions for bad loans rose by 88.8 per cent to Rs 6,339 crore in April-June from Rs 3,358 crore in the same quarter a year ago. SBI's provisions in the quarter ended March 2016 were about Rs 12,139 crore. Its provision coverage ratio improved in the June quarter to 61.57 per cent from 60.69 per cent in the March quarter. The ratio was 69.4 per cent in April-June 2015-16.

With a better monsoon and an upturn in the economy, the bank expects credit growth to be about 13 per cent in 2016-17. Referring to sale of non-core assets, Bhattacharya said SBI had a target of generating Rs 3,000 crore from this in 2016-17. It sold a 5 per cent stake in the National Stock Exchange in during the quarter for Rs 908 crore. This money would be used as provisions, SBI said.

The bank's capital adequacy ratio improved substantially during the quarter on gains from revaluation of real estate. SBI boosted its common equity Tier I capital by Rs 14,383 crore.

The capital adequacy ratio stood at 14.01 per cent, with common equity Tier I capital of 10.71 per cent in June, up from 12 per cent and 9.59 per cent, respectively, a year ago.