SBI Q1 net rises 1% as loan loss provisions widen
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SBI Q1 net rises 1% as loan loss provisions widen

Mumbai: State Bank of India (SBI), the country’s largest lender, posted a marginal 1% rise in net profit to ₹17,035 crore in the June quarter from the year before mainly due to a sharp rise in provisions as it had to set aside a larger amount for legacy accounts. A compression in net interest margin (NIM) and a fall in treasury income due to a change in regulations also eroded profit

Loan loss provisions increased 70% year on year to ₹4,518 crore from ₹2,652 crore in the year earlier, squeezing net profit despite loan growth remaining strong. Chairman Dinesh Khara said the provisions were mostly related to legacy standard assets and the asset-quality outlook for the bank remained unchanged.”We don’t have any challenges in asset quality,” Khara said.

“In fact, our credit cost is still lower than our guidance and our slippages ratio is actually down year on year.” The bank has guided for keeping credit costs below 0.50%. Out of the ₹4,518 crore provided for loan losses this quarter, more than half, or ₹2,488 crore, was to provide for legacy borrowings, while about ₹1,140 crore was to cover for fresh slippages, the bank said.

The slippage ratio was down to 0.84% from 0.94% a year ago, though higher than the 0.62% reported in the March quarter. Fresh slippages increased to ₹7,903 crore in June from ₹7,659 crore a year ago, double the ₹3,867 crore reported in the March quarter.

Of the fresh slippages, ₹3,000 crore was on account of loans to individuals, followed by ₹2,500 crore due to farm credit, the chairman said. “We saw some delay in salaries by some state governments during the quarter, which is what led to some slippages but those are transitory issues,” said Khara. Khara will retire after a near-four-year term on August 28. “We have managed to pull back more than ₹1,600 crore of the total slippages in the current quarter.”Despite the increase in slippages, asset quality remained stable with the gross non-performing asset (NPA) ratio at 2.21%, down from 2.76% a year ago. The bank’s balance sheet was helped by strong credit growth of 15%, led by a 20% expansion in loans to small and medium enterprises (SMEs) and 17% growth in agricultural credit.Growth in retail and personal loans grew at a slower pace, 14%, which Khara acknowledged was also due to higher risk weights mandated by RBI in November.

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“The increase in risk weights also incurs a cost on our portfolio advances, which we have to keep in mind,” Khara said. “But we are also seeking/seeing? good traction in our mid-corporate loans.”

The bank has a loan pipeline of close to ₹4 lakh crore, especially to the private sector, out of which sanctioned loans amount to ₹2.26 lakh crore. Pressure on the bank’s profitability was evident with NIM, the difference between the yield earned on loans and that paid on deposits, falling to 3.22% from 3.33% a year ago. Khara said he expects the bank to maintain NIM at 3.20-3.40%.

Improvement in Asset Quality
Deposit growth at 8.18% year on year still lagged behind credit growth but Khara said the bank is conscious of the cost at which it is raising funds. “We are making an optimal choice on rates. We should not lose sight of the cost of raising deposits,” he said.

A fall in the bank’s non-interest income also hit profit. It dropped 7% to ₹11,162 crore in the quarter, largely due to a 33% decline in trading gains after new RBI rules took effect in April. These stipulate that any un-booked profits in the available-for-sale (AFS) portfolio will have to be moved to the AFS reserve account and considered part of capital and not profit.

The improving yield on investments wasn’t enough to offset provisions, leading to a sequential decline in net profit, said Manish Chowdhury, head of research at StoxBox, who said the earnings were lacklustre.

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