A surge in provision towards bad loans proved to be a drag on the profitability of State Bank of India in the third quarter ended December 31, 2015.

Standalone net profit at India’s largest bank declined 62 per cent in the reporting quarter to ₹1,115 crore against ₹2,910 crore in the year-ago period.

Net interest income (difference between interest earned and interest expended) declined 1.24 per cent to ₹13,606 crore (₹13,777 crore in the year-ago period).

Non-interest income was up 18 per cent to ₹6,178 crore (₹5,238 crore).

Fresh slippages in the reporting quarter jumped ₹20,692 crore (₹7,043 crore). Of this, ₹5,900 crore was regular slippage and the balance was due to account classification arising from Reserve Bank of India’s asset quality review.

This is probably the highest ever quarterly slippage reported by SBI.

NPAs worrisome

At a media interaction, SBI Chairman Arundhati Bhattacharya said: “There is, of course, a lot of worry because of the numbers, especially the NPA (non-performing asset) numbers.

“In this connection I would like to tell you that even in the earlier quarters we had been saying that there are a few large accounts where workouts were happening and if they happened then things should be alright, if not probably we need to classify them (as bad loans).”

The SBI chief explained that in this quarter many of these accounts have been taken or rather classified by the bank. “So, it is not some accounts that were not known or it is not something that has suddenly happened,” she added.

Loan-loss provisions, year-on-year (yoy), were up 59 per cent at ₹7,645 crore (₹4,810 crore).

Bhattacharya said, “The slippages could be around this number (third-quarter number) in the fourth quarter also. “However, they (slippages) may be lower if we are able to finish the (loan account) workouts within that period.

“They may be higher in case there are other accounts that other banks have done (classified as bad loans), which then we will need to look at in order to classify.”

She observed that most of the pain (of bad loans and provisioning) will be taken, to the extent possible, within this (financial) year. But there might be some residual in the coming financial year.

Interest margin

Net interest margin declined to 2.93 per cent in the December 2015 quarter from 3.12 per cent in the year-ago quarter.

Bhattacharya attributed the dip in NIM to various factors, including the 70 basis points cut in base rate; credit growth not keeping pace with deposit growth, resulting in the bank making investments, which typically earn lower margins as compared to loans; and interest claw-back that happened on account of classification of restructured accounts.

While large corporate and retail loans grew robustly by 21 per cent and 18 per cent, respectively, agriculture and mid-corporate loan growth were tepid at 1 per cent and 2 per cent, respectively. Small and medium enterprise loans were up 8 per cent.

Gross non-performing assets and net non-performing assets rose to 5.10 per cent (4.90 per cent) and 2.89 per cent (2.80 per cent), respectively.

SBI shares closed at ₹154.20 apiece, down 2.99 per cent over the previous close on the BSE.

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