Q3 COMMENT. SBI Q3 results: Largest lender reels under loan quality pressure

Radhika MerwinBL Research Bureau Updated - January 19, 2018 at 10:36 PM.

The bank has large exposure to corporates in the troubled iron & steel and infra sectors

Slowing loan growth and mounting asset quality pressure — on account of the RBI’s asset quality review — has weighed on banks’ performance. The tale has been no different for State Bank of India, India’s largest bank.

In the December quarter, the addition to bad loans has gone up to about ₹20,000 crore, more than thrice the amount recorded in the previous quarter. Given that SBI constitutes about one-fifth of the total advances in the overall banking system, such high levels of stress is a cause for concern. The bank’s earnings shrunk 62 per cent in the December quarter compared to same period last year, owing to weak core performance and increase in provisioning for bad loans which went up by 31 per cent during the period.

More pain

The sharp increase in slippages in the December quarter has been on account of the RBI’s asset quality review that has impacted most banks.

SBI has large exposure to corporates in the troubled iron and steel and infrastructure sectors. A large portion of SBI’s loan delinquencies has been from the SME, mid-corporate and agricultural segments — gross non-performing assets in each of these segments are a high 8 per cent, 14 per cent and 8.5 per cent, respectively.

SBI has been one of the better performing public sector banks on the asset quality front. But with the sharp slippages this quarter, its gross NPAs have shot up to 5.1 per cent of loans. This is close to the levels seen in the December 2013 quarter. The bank was able to contain additional slippages in the past few quarters.

But the RBI’s asset quality review has now opened up the possibility of further stress in the coming quarters.

Muted core performance

SBI witnessed a loan growth of 12.8 per cent (year-on-year), higher than the overall bank credit growth of about 8-9 per cent in the December quarter. But this is in stark contrast to the healthy 20-25 per cent growth in loan that peers, such as Axis Bank and HDFC Bank, managed to deliver in the December quarter.

Published on February 11, 2016 17:27