SBI holds on to hope as Q1 provides some relief on stress – Mint

Khara, though, stopped short of giving a clear guidance on growth. “Perhaps, guidance at this point is difficult. We should be in market to support economic activity and recovery,” he said at a post-earnings virtual press meet on Wednesday. To be sure, the second wave of covid-19 has done more damage to sentiments than to economic output, increasing the uncertainty over revival. Companies are unwilling to invest and increased leverage on household balance sheets could be a potential source of stress.

Most lenders, therefore, have refrained from giving a clear guidance, and SBI’s reluctance should not come as a surprise. For the June quarter, loan growth has stayed tepid, with the book remaining flat sequentially. The corporate loan book continued to shrink but retail loans perked up. Khara pointed out that capacity utilization continues to be weak and drawdowns by companies are low. The silver lining in growth continued to be retail loans.

Here, SBI’s confidence comes through. Retail loans grew by 16% year-on-year (y-o-y), helped by a low base, as last year’s June quarter was hit by the nationwide lockdown. Khara said retail, especially home loans, would keep the bank in good stead. SBI has been most aggressive in home loans with the portfolio growing at 3-4 times the pace of its overall loan book. The bad loan ratio of home loans was 1.39% in the June quarter, higher than the overall ratio of the retail portfolio. What’s more is that half of SBI’s home loan book is to self-employed borrowers. Self-employed borrowers, some also promoters of small and medium enterprises (SMEs), have been the biggest source of distress for banks during the pandemic. Khara’s conviction to keep up the pace of disbursement here seems unwarranted. The fact that much of the new stress emerges from SME does not help SBI either.

Overall fresh slippages at ₹15,666 crore were higher than expected, according to analysts at Jefferies India Pvt. Ltd. The bank’s restructured book stands at around ₹18,000 crore, a potential source of pain. The pile of loans where repayments are overdue for more than a month stood unchanged at ₹11,303 crore. The bank has alleviated concerns by pointing out that much of the defaults were due to temporary cash flow troubles faced by borrowers in the wake of the regional lockdowns. With the second wave ebbing and restrictions getting lifted, these accounts may begin to repay.

For now, SBI has chosen to not make large provisions. Provisions towards bad loans nearly halved from a year-ago and even sequentially, a sign that the bank is more confident on its asset quality path. This confidence comes from the fact that SBI holds ₹9,065 crore specifically towards pandemic-related stress, and the improvement in collections in July. A sharp drop in provisions and growth in non-interest income gave SBI its highest ever quarterly net profit in the June quarter.

Elated investors drove the shares up by more than 3% on Wednesday. But one quarter of stellar profits does not make a year of recovery.