State Bank of India, contrary to the industry trend of rising bad loans, has improved its asset quality this quarter. SBI's gross non-performing ratio (NPA) fell from 4.6 per cent in December 2011 to 4.44 per cent in March 2012, an improvement after five consecutive quarters of rising ratios.

SBI not only improved quality of its loan book but also maintained margins at elevated levels. The March quarter net profit was at Rs 4,050 crore, compared to Rs 20.8 crore a year ago.

Only Rs 4,300 crore of SBI's standard assets slipped into NPA category — the lowest since the December 2010 quarter. For the first nine months of 2011-12, around Rs 22,500 crore of loans slipped into NPAs. The lower slippages are indicative of the bank's loan book quality stabilising.

Loan upgradation

Additionally, the upgradations of loans from non-performing assets to standard assets and cash recovery this quarter were also at a record high, helping the bank keep tab on NPAs.

Much of the NPA slippages in the March quarter were from the mid-corporate segment, while the recovery was from the retail and large corporate segments.

Net NPA ratio and restructured assets, perceived as risk assets, account for only 5.4 per cent of advances.

Another encouraging aspect about the bank's performance is that riskier assets have grown by less than 1 per cent for the domestic business, compared to the balance sheet growth of 9 per cent. This allowed the bank to conserve capital.

Credit-deposit ratio

The bank also had to forgo market share in advances to maintain capital adequacy ratio prior to the capital infusion of Rs 7,900 crore by the government. The tier-1 capital ratio was at 9.8 per cent as of March 2012; this will take care of the loan book growth for a couple of years.

Even as the bank went slow on balance-sheet expansion, given that it was conserving capital, the net interest income grew by 45 per cent year-on-year. Not only has the credit deposit ratio of the bank risen but the margins have also improved significantly year-on-year. The domestic credit-deposit ratio improved from 76.3 per cent in March 2011 to 78.5 per cent March 2012.

The net interest margin of the domestic business, at 4.15 per cent, was aided by fall in bulk deposit proportion and also improved focus on agriculture and SME loans. Rising proportion of savings deposit accounts and cut in cash reserve ratio also played their part in margin improvement.

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