SBI Q3 net profit rises by 4% as core income falls on higher provisioning on bad assets

Feb 14 2013, 20:31 IST
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Standalone net profit rose to 33.96 billion rupees ($631.40 million) for the quarter ended December. (Reuters) Standalone net profit rose to 33.96 billion rupees ($631.40 million) for the quarter ended December. (Reuters)
SummarySBI reported a marginal 4.08% increase in net profit at Rs 3,396 crore for the third quarter.

State Bank of India (SBI) today reported a moderate 4 per cent growth in profit -- the lowest in the past six quarters -- at Rs 3,396 crore in October-December quarter on fall in core income and higher provisioning due to rise in bad assets.

Total income of the bank rose to Rs 33,992 crore during the third quarter from Rs 29,787 crore in the same period a year ago.

Bad assets as gross NPA level touched 5.30 per cent in the quarter, compared to 4.61 per cent in the same period last fiscal, with fresh slippages of over Rs 8,100 crore.

SBI Chairman Pratip Chaudhuri attributed the rise in bad loans to slowing economic growth, high interest rates, difficulties faced by government in paying contractors and also some sector-specific issues like with iron and steel segment due to mining scams.

Chaudhuri reiterated that the worst is over for his bank on asset quality and added that up to Rs 2,000 crore of the NPA has already turned standard as of December.

"NPAs have peaked. What gives us comfort is that sectors like textiles, construction and roads are picking up."

SBI, which has exposure to many of the troubled firms, including state electricity boards, Kingfisher Airlines, Air India and Suzlon, saw its net NPA rise to 2.59 per cent of assets in the December quarter from 2.22 per cent a year ago.

Country's largest lender also saw a drop in fee income at Rs 2,559 crore in the quarter from Rs 2,642 crore a year ago.

Shares of SBI fell 3.5 per cent after the result, but later recovered to close down 1.80 per cent.

The SBI chief said mid-corporate segment continued to see some defaults, making the bank little hesitant and selective in lending to this sector.

Net interest income (NII), the core income for a bank, dipped 3.16 per cent to Rs 11,154 crore in the third quarter ended December 31 due to shifting of Rs 20,000 crore of pension corpus to a separate trust along with a rise in interest expended.

Kotak Securities banking analyst Saday Sinha said the SBI's NII was impacted due to a sharp margin contraction (down 65 bps), while net profit was impacted by higher NPA provisions, which spiked 50 per cent sequentially, despite robust other income growth, which clipped 76 per cent.

Although addition to stressed assets is marginally down, it still remains at elevated levels, he said.

Total provisioning of the bank stood at Rs 4,394.70 crore during the December quarter, up from Rs 3,996.97 crore in the corresponding period last fiscal, SBI said in a statement.

The gross non-performing assets, which represents portion of bad loans, stood at Rs 53,457 crore at the end of December, up from Rs 40,098 crore in the year ago period.

However, Kotak Securities gave an 'Accumulate' call on SBI shares, saying the current market price is reasonable.

IndiaInfoline Research head Amar Ambani said SBI's disappointing numbers, which is the lowest growth rate in net income in six quarters, belie the hypothesis that the worst of the credit cycle is behind the nation's largest lender.

Referring to the restructured assets, Chaudhuri said around Rs 3,700 crore is on the pipeline of which Rs 2,500 crore is likely to come from the mid-corporate segment.

Additionally, the bank will have to provide up to Rs 600 crore towards wage increase of 15 per cent starting the next quarter, Chief Financial Officer Diwakar Gupta said.

On the net interest margin front, the lender reported a flat NIM of 3.72 per cent in the third quarter.

"We hope to maintain the NIM at the current level or it may improve to 3.75 per cent," Chaudhuri maintained.

State Bank of India Q3 net profit rises 4%, bad loans weigh

(Reuters): State Bank of India, the country's biggest lender, posted a 4 percent rise in quarterly net profit, its smallest increase in six quarters, as higher provisions for bad loans and slower loan demand in a sluggish economy hurt growth.

Problem lending has risen in India as the country's worst economic slowdown in a decade clouds the outlook for banks including SBI, which accounts for a quarter of all loans and deposits in the country.

Net profit rose to 33.96 billion rupees ($631.40 million) for the quarter ended December, from 32.6 billion rupees a year earlier, the bank said on Thursday.

Analysts, on average, had expected a net profit of 36.96 billion rupees, according to Thomson Reuters I/B/E/S.

Net interest margin, a key gauge of profitability, stood at 3.7 percent at end-December, in line with estimates. Provisions rose to 26.7 billion rupees in the quarter, from 24.1 billion a year earlier.

The government-controlled bank, which has exposure to many of India's most beleaguered big borrowers including state electricity boards, Suzlon Energy, Kingfisher Airlines and Air India, said net non-performing assets rose to 2.59 percent of assets in the December quarter from 2.22 percent a year earlier.

SBI's gross bad loans, before recoveries and write-offs, stood at 5.3 percent of assets in the quarter, an increase of nearly a third from a year earlier at a time when analysts were expecting asset quality to improve.

The lender has been aggressive in identifying bad loans and making provisions since Chairman Pratip Chaudhuri took the reins in 2011. Its bad loan levels are above the industry average of around 3 percent.

SBI shares recovered ground after slipping as much as 3.5 percent after the results. At 1:20 p.m. (0750 GMT), the stock was down 0.6 percent. The stock is down 6 percent this year, underperforming the sector index that is down 1 percent in the same period. ($1 = 53.79 rupees)

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