SBI posts highest ever net on Essar Steel recovery

Asset quality improves, slippages stay elevated; no big ticket loan going forward, says CMD

State Bank of India, the country’s largest lender, reported its highest-ever quarterly profit of ₹5,583 crore in the October-December period, up 41% year-on-year, mainly due to a lower provision for bad loans and higher interest income.

An ₹11,000-crore recovery from Essar Steel, which was resolved though the bankruptcy courts during the quarter, helped the lender to write back provisions as well as boost its net interest income. Provisions for bad loans dropped 41% to ₹8,193 crore.

“It has been a strong operating performance by SBI in terms of profit, profitability parameters, asset quality, provision coverage ratio and capital adequacy,” said Rajnish Kumar, Chairman, SBI, in the post-earnings media interaction.

Net interest income grew 22% to ₹27,779 while other income rose by 13% to ₹9,106 crore. Domestic net interest margin (NIM) improved to 3.59% in the third quarter for fiscal 2020, ended December, registering an increase of 62 basis points (bps) year-on-year and 37 bps sequentially. “During the quarter, [the] bank exercised the option of lower tax rate taking a one-time hit of ₹1,333 crore,” SBI said. The new tax rate will be applicable from the fourth quarter.

Slippages to bad loans, however, remained elevated at ₹16,525 crore, which included loan exposure of ₹7,000 crore to Dewan Housing Corporation Ltd. SBI also had a ₹2,900-crore bond exposure to the troubled mortgage lender and has a provision of 29% of the total exposure.

“Going forward there is no big ticket loan which is likely to slip,” Mr. Kumar said. He indicated that slippages would remain in the range of ₹5,000 crore to ₹6,000 crore in the fourth quarter.

Asset quality improved, with the gross non-performing assets (NPA) ratio dropping 177 bps year-on-year and 25 bps sequentially to 6.94%.

Net NPA ratio was at 2.65%, down 130 bps year-on-year and 14 bps over the previous quarter. The provision coverage ratio was 63.5% at end December compared with 56.9% a year ago.

Domestic loan growth remained tepid, growing by only 6.8% year-on-year due to lower demand from the corporate sector, though home loan growth remained healthy at 15.6%.

“Not so good growth in corporate loan book. I think that will be only discordant note so far as bank’s performance in this quarter,” he said.

Domestic deposit growth was 9.9% led by term deposit growth of 10.6%. The share of current and savings account deposit in total deposits fell 51 bps year-on-year to 44.72%.