MUMBAI: State Bank of India (SBI) shocked investors with a third straight quarter of losses as it provided for bond losses upfront and forecast another quarter of pain as it awaits the resolution of a troubled asset, sending the stock down 3.8%. But the bank promised to deliver full-year profits as it believes loan demand is set to accelerate in the coming quarters and default rates will slow, having almost fully provided for all cases referred to the bankruptcy court.
The country’s largest lender posted a June quarter loss of ₹4,876 crore against a profit of ₹2,006 crore a year earlier. Analysts had forecast a net profit of ₹238 crore, according to Bloomberg. The markto-market bond losses added up to ₹5,900 crore.
Loans grew 7% with retail lending, led by home and car loans, increasing 14%. Operating expenses jumped 20% to ₹16,505 crore, fuelled by a surge in staff pensions and goods and services tax (GST) payments. Operating profit was flat at ₹11,973 crore.
“All the pain we have taken upfront,” said SBI chairman Rajnish Kumar.
Threat of More Loans Going Bad
“We are not leaving anything for future earnings which should remain protected against the past — that is where we have advanced quite a bit,” he said. “All provision for NCLT (National Company Law Tribunal) account has been largely taken care of.” The NCLT benches handle the resolution of banks’ bad loans under the Insolvency and Bankruptcy Code (IBC).
State-run lenders and corporate-focused private banks are struggling with a mountain of bad loans as the combination of a slump, policy bungling and wrongdoing have led to defaults. While the IBC has been put in place to speed up loan resolution, progress has been slow. On top of this, a sharp rise in bond yields has also resulted in losses for banks.
“In September, we intend to further improve the provision coverage ratio so that from December onwards there would be no looking back and there will be no hangover of past credit cost,” said Kumar. “In fact, from September itself we may make profit, but there would be two factors” that this would depend on — resolution of a case in the National Company Law Appellate Tribunal (NCLAT) in September and bond yields. NCLT cases are appealed at the NCLAT.
SBI chose to provide for all the Rs 5,893 crore in losses incurred in the treasury portfolio in one quarter, choosing not to opt for the Reserve Bank of India dispensation that allows banks to amortise these across four quarters of the current fiscal. Kumar said the bank did not want to “burden its future” with provisions that cannot be avoided.
But the bank still faces the threat of more loans going bad.
“The main reason for the loss was Rs 5,900-crore mark-to-market losses the bank took this quarter,” said Darpin Shah, analyst at HDFC Securities. “However, the real pain remains SMA (2) accounts and corporate loans, which can still slip into NPAs (non-performing assets). Reports are that there will be another RBI list on NPAs, which means that there is still uncertainty on the bank.” SMA refers to special mention accounts, where loan repayments are overdue.
Other income, which includes treasury operations and the sale of financial products such as mutual funds and insurance, fell 17% to Rs 6,679 crore in the June quarter from Rs 8,005 crore a year ago. Other income would have increased 27%, if treasury losses were excluded.
Net interest margin (NIM), or the difference between the yield earned on loans and that paid on deposits, increased 45 basis points to 2.95% from 2.50%, mainly as the bank’s cost of deposits declined 43 basis points. One basis point is 0.01 percentage point.
Provisions for bad loans jumped to Rs 13,037 crore, up from Rs 12,125 crore a year earlier but down from Rs 24,080 crore in March 2018. Gross bad loans increased to 10.69% of total assets, from 9.97% a year earlier. Net bad loans stood at 5.29% of net advances.
While the bank has seen operating costs rise by a fifth mainly due to pension provisions, it has cut expenses elsewhere. It shut 1,589 branches in the past 12 months and closed 289 currency chests across the country. SBI shed 4,061 jobs in the June quarter as total staff strength fell to 259,980 from 264,041 at the start of April.
Source: Economic Times