At first glance, SBI reporting profits in the latest September quarter against a substantial loss in the June quarter, a small reduction in gross non-performing assets (GNPA), and lower provisioning appear to have enthused the markets. But as they say, the devil is in the detail. Digging deeper into SBI’s numbers suggests a not-so-comforting picture for the largest lender.

Market movement

Elevated fresh slippages, no substantial reduction in the bank’s watchlist (stressed assets pool), and fall in recoveries (from the June quarter) indicate that the bank is still not out of the woods. Markets could well give a thumbs down to SBI’s September quarter performance on Tuesday.

After reporting a loss of ₹4,876 crore in the June quarter, SBI managed to move into the black, reporting a profit of about ₹945 crore. But had it not been for the one-off exceptional gain of ₹1,560 crore, earnings of SBI would have remained in the red in the September quarter as well.

SBI’s asset quality woes that got accentuated with the merger of its associate banks are yet to ease up.

Just as any other bank, SBI, too, had reported huge slippages during FY18 when the RBI’s February circular on stressed assets further accelerated the NPA recognition exercise. But even the June quarter performance for the bank remained dismal as it saw accretion of ₹14,300 crore (fresh slippages, plus increase in outstanding NPAs) to its bad loan book.

In the latest September quarter, SBI has added ₹10,888 crore to its bad loans, a figure that is hardly comforting for a bank that sits on a bad loan book of over ₹2 lakh crore.

Also, SBI witnessed a much lower recovery and upgradation of ₹4,300 crore in the September quarter from around ₹14,800 crore in the June quarter.

Despite the steep slippages, SBI still has around ₹20,359 crore accounts under its watchlist – this includes all corporate SMA2 (where payments are overdue by 61-90 days) and stressed SMA1 accounts (overdue by 31-60 days).

Such a large stressed assets pool remains a worry, and leaves open the possibility of still large slippages in the coming quarters.

The RBI’s February diktat that requires banks to report even one-day defaults and draw up resolution plans within 180 days, has also led to a lot of uncertainty for banks that are saddled with large stressed power assets. Of SBI’s watchlist as of September 2018, about ₹9,900 crore pertains to the power sector.

The fact that a chunk of the slippages in the September quarter have come from outside the corporate sector is also worrisome.

About ₹3,189 crore of slippages were from the corporate sector in the September quarter. The balance – around ₹7,500 crore (up from ₹6,200 crore in the June quarter) – appears to have come from other segments such as agri, SME and retail.

Non-corporate slippages in the latest September quarter appear to be the highest (barring the post-merger impact in June quarter last year) in the last two years.

Hence, still elevated additions to bad loans and a large watchlist indicate that recovery in earnings for SBI is likely to be a long-drawn exercise with little respite in the current fiscal.

Weak core performance

While SBI’s loan growth has picked up to 11 per cent in the September quarter (domestic advances) from 7 per cent in the June quarter, it has not resulted in the expected growth in net interest income (possibly due to slippages).

SBI’s 12 per cent growth in net interest income in the September quarter is still a lukewarm performance for a bank of its size and reach.

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