While State Bank of India’s net profit declined 8 per cent year-on-year in the March quarter and 23 per cent in 2013-14, the market gave a thumbs up to the stock, marking it up a good 10 per cent on Friday.

The reason was that India’s largest bank joined its public sector peers such as Bank of Baroda in containing addition to bad loans.

SBI saw a significant reduction in fresh slippages during the March quarter, to ₹7,947 crore from ₹11,438 crore in the December quarter.

Until recently, the asset quality worries for SBI were a cause of serious concern.

The bank had one of the highest gross non-performing assets (GNPAs) at 5.7 per cent of its loans. But in the March quarter, GNPAs as a per cent of loans has moderated to 4.9 per cent, thanks to higher upgrades and recoveries of bad loans.

Efforts to contain additional slippages seem to be paying off. The bank has set up committees at various levels to identify early signs of stress.

SBI has also been selling its NPAs to asset reconstruction companies to enable better recovery of bad loans. But amid the better tidings, there has been one worry in the March quarter.

SBI has had the lowest proportion of restructured assets compared to the 6-10 per cent for other public sector banks. But the share of loans recast in the March quarter has inched to 3.46 per cent from 3.3 per cent in the December quarter.

That said, if the new Government kick-starts stalled projects and revives reforms in core sectors as expected, asset quality pressures may continue to ease. A large portion of SBI’s loan delinquencies is from the SME, mid-corporate and agricultural segments. Within the corporate segment, a major portion of slippages are from stressed sectors such as iron and steel, infrastructure and textiles. Revival in these stressed sectors should lead to an improvement in the bank’s asset quality and its earnings.

SBI has also seen improvement in its core net interest income over the last three quarters. From just 3 per cent growth in the June quarter, the net interest income growth has climbed to 16 per cent in the March quarter. This, in part, has been due to the bank’s formidable retail presence.

Retail loans

With the largest network of branches in the country, SBI’s retail loans constitute 20 per cent of its portfolio – the highest among public sector banks.

The bank has seen steady growth in the retail segment on the back of market share gains in the home and auto loan segments. In 2013-14, the retail loan book grew 13 per cent, with home loans leading the charge (17.8 per cent growth).

Related Topics