State Bank of India’s net profit in the December quarter declined 34 per cent over the year-ago period mainly due to an increase in operating expenses and bad loan provisioning. The poor performance was an encore of the previous quarter. But the market was more unforgiving this time around, marking the stock down 2 per cent on Friday.
This seems to be due to the sharp increase in additional bad loans — 37 per cent higher than in the September quarter. With ₹11,438 crore of fresh bad loans, clearly, asset quality worries seem far from over for India’s largest bank. In contrast, some of its peers such as Bank of Baroda and PNB were able to contain fresh slippages in the December quarter.
SBI has also shown no significant improvement in the recovery of delinquent loans. Its provisioning cover has also declined 500 basis points from last quarter and is down to 45 per cent.
The bank’s loan growth, which is skewed in favour of the corporate segment, is a concern. While peers such as Bank of Baroda have been leaning towards the retail segment to drive growth, SBI’s continued focus on the mid and large corporate segments can continue to put pressure on its asset quality. The bank continues to lend more to stressed sectors such as infrastructure (28 per cent growth in the December quarter). A large portion of its loan delinquencies came from the SME, mid-corporate and agricultural segments — where gross non performing assets were to the order of 9-11 per cent of loans given.
SBI’s stressed assets are now about 9 per cent of its total loans, including recast loans. The stress is showing on its earnings — return on equity has fallen from 17.6 per cent last year to 10.9 per cent.
Improving asset quality will be essential for the stock to regain investor confidence.