Q2 Results: SBI Returns To Profit After Three Quarters, Asset Quality Improves

The country's largest lender, State Bank of India Ltd., returned to profitability after three quarters helped by a one-time gain and lower provisions.

Net profit fell 40 percent year-on-year to Rs 945 crore for the three-month period ending September 30, the country's largest lender said in an exchange filing today. That's higher than the Rs 775 crore profit estimated by analysts tracked by Bloomberg.

Net interest income, or the core income of the bank, rose 12 percent year-on-year to Rs 20,905 crore, lower than the consensus forecast of Rs 21,355 crore. Normalised net interest margins widened to 2.76 percent from 2.67 percent in the previous quarter.

The state-owned lender would have reported a fourth straight quarterly loss if not for a one-time gain of Rs 1,087.4 crore from the sale of investments in its general insurance business and merchant banking business.

“Though the profit is modest, there is no looking back,” said Chairman Rajnish Kumar at the press conference. “From here on, this number will only be bigger and better,” said Kumar reiterating his belief that a pick-up in resolution of stressed accounts will help improve profitability for corporate lenders.

Asset Quality Improves

SBI's asset quality improved during the quarter. Gross non-performing assets stood at 9.95 percent compared with 10.69 percent last quarter. Net NPAs stood at 4.84 percent versus 5.29 percent.

The slippage ratio for the bank, which reflects the proportion of advances turning bad during the quarter, fell to 2 percent. This was the lowest in six quarters, said the bank.

Most of the corporate slippages came from the already identified watchlist, said the bank's management. However, there was an increase in slippages in the retail and SME portfolio. The book of small and medium enterprise loans saw increased slippage as a dispensation provided by the Reserve Bank of India to these firms expired in the September-ended quarter.

Provisions stood at Rs 10,184.5 crore. That's lesser than the Rs 19,228 crore set aside in the previous quarter and Rs 28,096 crore in the quarter before that. The bank's provision coverage ratio stood at 53.95 percent.

Going ahead the bank expects some relief from the first list of accounts referred to the National Company Law Tribunal (NCLT). Among those twelve accounts, Essar Steel is close to resolution. “We will see a Rs 6000 crore write-back from one of the NCLT-1 accounts,” Kumar said.

The bank has made provisions of Rs 56 crore against its exposure to the IL&FS group. The lender's exposure is to operational special purpose vehicles (SPVs).

Operational Performance

Growth in the bank's loan book was in line with the system level loan growth.

Domestic advances rose 11 percent, with the corporate loan portfolio growing the fastest. Corporate loans rose 14.3 percent over last year. Retail advances, including SME, agriculture and personal advances, rising 8.9 percent.

Deposits rose 7 percent, with domestic current account and savings account deposits rising 8.55 percent.

The stock closed 3.5 percent higher at to Rs 295.30 apiece after the earnings announcement, SBI's share price has fallen 10.43 percent over the last one year compared to a 0.2 percent rise in the NSE Nifty Bank Index.

Watch the interview with SBI's Managing Director Anushula Kant

(Corrects earlier version that said SBI reported a profit after four quarters.)