SBI Q1 net flat at Rs 17,035 crore on interest margin drop and increased loan loss provision
State Bank of India, India’s largest lender that controls over a fifth of the sector’s loans and deposits, has reported a muted set of numbers in the June quarter (Q1) with its net income inching up a mere 0.89 percent to Rs 17,035 crore as against the year-ago quarter’s Rs 16,884 crore.
SBI chairman Dinesh Kumar Khara, who is retiring later this month, told reporters on Saturday (August 3) that the net interest margins declined by 12 bps to 3.35 percent as the bank has been paying more for its funds by way of fixed deposits. But he maintained that the bank will be able to maintain the margins at 3.2-3.4 percent range in the reminder of the fiscal.
During this quarter the bank’s provisions against aging loans also increased substantially. The loan loss provisions rose by a hefty 70.4 percent to Rs 4,518 crore, from Rs 2,652 crore a year ago, despite the bank reporting improvements in the overall asset quality. The bank had said earlier that its metrics with the gross bad loans ratio has improved by 55 basis points (bps) to 2.21 and the net bad loans ratio declining by 14 bps to 0.57 in the reporting period. Both these ratios were the best in over past ten years, Khara said.
Total provisions of the bank jumped 37.9 percent to Rs 3,449.42 crore, while the provision coverage ratio excluding technical write-offs stood at 74.41 percent.
The bank said that the cost of funds was higher as the bank paid more in interest to depositors than it earned from borrowers. Its interest income rose 16.2 percent to Rs 1,11,526 crore, while the bank saw its interest expenses rising by a much higher rate of 23.36 percent to Rs 70,401 crore. This has crimped the net interest margin by 12 bps to 3.35 percent from 3.47 percent.
Low margin means lower collection from borrowers which is called the net interest income printed in a low 5.7 percent growth to Rs 41,125 crore. All this had the credit cost of the bank rising by 16 bps to 0.48 percent.
Another reason for the poor show in the first quarter of this financial year was the lower income from the treasury. The results were also affected by the rise in slippages which increased by 10 bps to 0.84 percent on-year to Rs 7,900 crore led by personal loans and agriculture loans.
However, the management discounted any worries on this front saying this is seasonal as the bank has already recovered Rs 1,600 crore of this in since the closing of the quarter.
Chief financial officer Saloni Narayan said of the total fresh slippages of Rs 7,900 crore, Rs 3,000 crore came in from personal loans and housing loans; Rs 2,500 crore from the agriculture loans, Rs 2,200 crore came in from SMEs, and Rs 200 crore came in from small corporates.
But the management said that there is no worry on this front as the personal loans are mostly against salary accounts and the main reason for the non-payments has been that a few state government were delaying salaries in the quarter. But has been largely regularised now.
“So to put it in nutshell there is not stress on this front as the problem has been localised and seasonal,” said Khara, who retires on August 28 after helming the bank for almost four years as the chairman.
On the assets side, the bank saw its personal loans growth falling which was amply offset by the robust growth in loan demand from mid-corporates and small businesses, and retail loans including home loans, which respectively logged in 13.60 percent and 15.92 percent growth respectively. Home loans grew by 13.34 percent on-year to Rs 7.40 trillion, cementing its leadership position with over 28 percent market share.
The lender reported credit growth of 15.39 percent at Rs 32.18 trillion, driven by SME advances (19.87 percent) followed by agriculture advances that grew 17.06 percent. Retail loan and corporate loans clipped at 13.60 percent and 15.92 percent, respectively while home loans grew 13.34 percent to Rs 7.40 trillion.
Deposits grew 8.18 percent to Rs 49 trillion, of which the low cost current and savings accounts (Casa) deposits grew 2.59 percent.
The chairman said that with a capital adequacy ratio of 13.86, which is down 70 bps from the year ago period, the bank has the legroom to lend Rs 6.9 trillion in new loans.