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How prepared is State Bank of India to counter COVID-19 impact? –

Only about 23 percent of the term loans, by value, have availed the loan moratorium facility in State Bank of India (SBI), according to the numbers shared by the management on Friday while announcing the Q4 results.

This is a tad surprising. Going by this, SBI’s moratorium book is much less in size than its peers. If the industry trend offers any clue, for a bank of SBI’s size, this ratio should have come much higher upward of 30 percent. What is even more puzzling is the relatively lower provision amount set aside by the bank to counter the COVID-19 impact. According to the regulatory filing by SBI, the bank has made a COVID-19 provision of Rs 938 crore.

Analysts believe this figure has come on the lower side considering the big uncertainty lies ahead in the first quarter on account of COVID-19, a period when most of the economy was under lockdown. Even at the lower moratorium loan percentage (23 percent), this chunk of loans is high for a bank like SBI considering its loan book size. At 23 percent, a rough calculation shows that approximately over Rs 5 lakh crore book will be under moratorium. Slippages arising out of this portfolio will be significant. During the presser post the announcement of results, SBI Chairman, Rajnish Kumar sounded cautious on the path ahead and laid out multiple scenarios on growth depending upon how the COVID-19 crisis pans out in the Q1.

Asset quality

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Asset quality in Q4 shows a  healthy trend. SBI has shown an improvement in bad loan figures. Gross NPAs improved sequentially to 6.15 percent from 6.94 percent in the December quarter. Of this, corporate NPAs have contributed 9.67 percent or Rs 81,628 crore while retail NPAs contribute Rs 65,814 crore. In the retail book, agri and SME portfolios have contributed most to the NPAs.  Fresh slippages have come down by half in the fourth quarter to Rs 8,105 crore compared with the December quarter (Rs 16, 525 crore). Here again, agri NPAs remain tricky and forms a big chunk. Rs 5,238 crore has been added to the fresh slippages from agri loans. The next big addition is from the corporate book (Rs 1,561 crore ). The bank has delayed loan payments worth Rs 7,266 crore, of which Rs 3,672 crore are in the special mention accounts-2 (SMA-2) category, meaning these loans are overdue beyond 60-days.

What lies ahead?

The asset quality scenario, as mentioned above, looks comfortable as of now. There is clarity needed on the performance of the moratorium portfolio. The real impact on this portfolio won’t be visible since the loan moratorium scheme continues till August 31. The 23 percent moratorium loan figure mentioned by the SBI is likely to be till March quarter-end. More number of people would have applied for moratorium post March.

The real impact of lockdown on SBI’s loan books will be visible only in the second quarter when repayments are scheduled to resume. The loan growth is likely to remain muted or even contract in FY21 for most banks since demand has taken a severe hit both for retail borrowers (job losses, pay cuts) and corporate borrowers (workforce exodus, poor economic activity).

SBI’s decision to earmark lower provisions for COVID-19 impact suggests that the bank doesn’t expect much defaults due to the pandemic. This assumption may be proved wrong if the scenario worsens.

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