The June quarter results for public sector banks have been a mixed bag.

While asset quality overall has worsened in the latest quarter, some banks got a pat on the back from the market for beating modest expectations. But State Bank of India, which announced its results on Tuesday, failed to earn the market’s favour.

Weak loan growth and sharp increase in slippages (sequentially) dragged the stock down 5 per cent.

SBI’s steep rise in slippages in the June quarter comes after a not-so-bad performance by some of its peers, such as Bank of Baroda and Punjab National Bank.

While seasonally, slippages are higher in the first quarter for SBI, fresh slippages moving up from ₹4,769 crore in the March quarter to ₹7,318 crore in the June quarter is a cause for concern. In contrast, PNB saw a marginal dip in bad loans, while stressed assets of BOB was lower than in the March quarter.

SBI has been one of the better performing public sector banks on the asset quality front.

From 5.7 per cent GNPA levels and slippages of about ₹11,000 crore during the December 2013 quarter, the bank has been able to contain fresh slippages over the past few quarters.

The management has indicated that the stress will ease in the coming quarters.

Subdued loan growth

SBI’s core performance has also been weak in the June quarter. The bank’s net interest income (NII) grew a meagre 3.6 per cent compared with the same quarter last year.

Over the March quarter, the bank’s NII has fallen 6.6 per cent.

The bank has been seeing a sharp slowdown in its loan growth. During the June quarter, loan growth slipped to 6.6 per cent from an already muted 7.2 per cent in the March quarter.

Akin to peers

SBI’s weak core performance has been no different from peers PNB and BOB.

Both banks saw muted growth in net interest income owing to weak credit offtake. But given that SBI is the only player which has a healthy exposure (21 per cent) to retail, slackness in lending to this segment has been disappointing.

Larger peers in the private bank space such as HDFC Bank, Axis Bank and ICICI Bank have been able to deliver a healthy 25 per cent growth in retail loans. Compared to that, SBI’s 15 per cent growth in retail loan book is disappointing.

Muted loan growth has led to the bank’s net interest margin slipping below the 3 per cent mark in the June quarter.

Compared with the slow loan growth, the relatively stronger deposit growth at 13.7 per cent makes a good case for the bank to trim deposit rates further. This should help improve margins in the coming quarters.

While larger private banks are still delivering healthy returns — return on assets (ROA) at about 2 per cent — SBI has seen its ROA fall below 1 per cent in the June quarter.

The divergence in performance between private and public sector banks has only widened with the poor show by SBI in the June quarter.

Related Topics