A jump in bad loans, provisioning for pension liabilities and a fall in the value of international investments pulled down State Bank of India’s profitability in the April-June quarter.
India’s largest bank reported a 14 per cent drop in net profit to Rs 3,241 crore from Rs 3,752 crore in the year-ago period.
In the reporting quarter, the bank saw a net incremental growth in bad loans (after taking into account cash recoveries, upgradation of loan and write-offs) of Rs 9,702 crore (Rs 7,480 crore in the year-ago period).
Bad loans came mainly from the small and medium enterprises (SME), agriculture and retail (mostly personal loan) segments.
Due to the almost 100 basis points rise in the US treasury yields during the reporting quarter, SBI had to provide Rs 531 crore to cover depreciation in its international investment portfolio, comprising mainly investment in overseas bond issuances of Indian companies and banks. With the average longevity in the country increasing from 76 to 81 years (according to the revised mortality table based on Life Insurance Corporation of India data), the provision towards pension liability for the bank’s employees jumped 109 per cent to Rs 1,003 crore (Rs 481 crore).
SBI reported a marginal increase in net interest income (interest earned on loans and investments less interest paid on deposits) at Rs 11,512 crore (Rs 11,125 crore).
Non-interest income, comprising loan processing charges, commission on letters of credit/bank guarantees and foreign exchange operations, increased by 28 per cent to Rs 4,474 crore (Rs 3,493 crore).
Loan loss provision was lower at Rs 2,266 crore (Rs 2,790 crore).
Pratip Chaudhuri, Chairman, SBI, said: “The results this quarter have been pulled down by two negative features — one is the Rs 500-crore provisioning on our international book due to interest rate movement (the effect of tapering quantitative easing in the US), and the other being about Rs 700 crore additional provisioning required for pension obligation….This quarter, the NPAs, particularly in retail, SMEs and agriculture, surprisingly, have grown sizeably. Of course, we are making efforts to contain them.”
The SBI chief said his bank continues to maintain a good low-cost CASA (current account, savings bank) ratio at 44.67 per cent (46.14 per cent).
“The bank’s cost of funding remains the lowest in the industry and, therefore, it continues to have the ability to attract the best risk on its books. We have also changed tack slightly. We are going in for long-term assets of the highest quality,” he said.
“The bank is currently sitting on extra liquidity of about Rs 60,000-70,000 crore…. Therefore, we are positioning ourselves with this as the USP that we continue to fund the best-rated companies at an optimal rate (interest),” Chaudhuri added.
He said the bank will persist with the full-year net interest margin (domestic operations) projection of 3.50-3.60 per cent against 3.44 per cent in the April-June quarter.
SBI shares closed at Rs 1,604.80 per share, down 3.41 per cent, on the BSE.