SBI posts third straight quarterly loss at Rs 48.76 bn on higher provisions

State Bank of India (SBI) reported a net loss of Rs 48.75 billion for the April-June 2018 period (Q1), its third straight quarterly loss, on account of huge provisions for erosion in value of its investment in bonds and an increase in operating expenses due to wage revision and enhanced limits for gratuity.

However, its asset quality profile improved with a fall in bad loans and improvement in provision for stressed assets. Also, its net interest income (NII) and margins were better in Q1 compared to the same quarter last year.

The country's largest lender had posted its biggest-ever quarterly loss of Rs 77.18 billion in the March 2018 quarter, and a net profit of Rs 20.05 billion in April-June 2017 (Q1FY18).

Q1FY19 was the first comparable quarter for the merged entity after SBI integrated associate banks and Bharatiya Mahila Bank with itself in April 2017. It has been in the red since the third quarter of last financial year (Q3FY18), when it reported a loss of Rs 24.16 billion. Elaborating on loss in the first quarter, Rajnish Kumar, chairman, SBI, said the bank's net loss was largely attributable to lower trading income and significant MTM (mark-to-market) losses due to hardening of bond yields. “The higher provision on account of wage revision and enhancement in gratuity ceiling also impacted the bottom line," he added.

Operationally, the bank's performance was reasonable in terms of growth in NII and profitability. SBI expects to be back in the black from the third quarter onwards. There is a chance of the lender posting profit in the second quarter, but it would depend on resolution in one large corporate account and extent of provision it will have to make for stressed power sector assets.

Its net interest income (NII) rose by 23.81 per cent to Rs 217.99 billion in Q1FY19 as against Rs 176.06 billion in the year ago quarter. Even if one were to adjust for Rs 20 billion of interest income reversal (addition to NII) as the bank recovered money from certain bad loans, the growth was healthy.

Net interest margin (Domestic business), a profitability indicator, increased by 45 basis points to 2.95 per cent in Q1, from 2.50 per cent in the year-ago period and by 28 basis points sequentially.

Its other income, comprising treasury income, commissions etc, declined by 16.57 per cent year-on-year to Rs 66.79 billion in Q1 from Rs 80.05 billion, on account of lower trading income. The bank's asset quality also improved, which is reflecting in the gross non-performing assets (NPAs) ratio. The same improved to 10.69 per cent as on June 30, 2018 from 10.91 per cent at the end of March 2018, indicating stabilisation in asset quality. The agriculture loan book saw rise in slippages (new bad loans), showing effect of debt wavier scheme in Maharashtra and Karnataka, he said. Total provisions and contingencies more than doubled year-on-year to Rs 192.28 billion in Q1. Of this, provisions for bad loans rose marginally on year-on-year basis to Rs 130.37 billion in Q1 from Rs 121.25 billion in Q1FY18.

However, the Provision Coverage Ratio (PCR) improved by 846 basis points year-on-year to 69.25 per cent in June 2018, and was also up by 308 bps sequentially. The PCR indicates the extent of funds a bank has set aside for loan losses, and a higher ratio indicates that a bank has made adequate provisions for such loans. Interestingly, the PCR for top NCLT accounts (list 1 and 2) jumped from 63 per cent in the March 2018 quarter to 71 per cent; for the more weak loans of NCLT list 2, the PCR is 79 per cent, indicating that future provisions for these loans will be minimal, if any.

Thus, the bank's net NPA ratio declined to 5.29 per cent from 5.73 per cent in the last year's quarter.

All these suggest that the bank is moving in the right direction, from the perspective of asset quality and provisioning of bad loans.

Bank's deposits increased by 5.58 per cent from Rs 26.02 trillion in June 2017 to Rs 27.47 trillion as on June 18. The entire loan book (domestic and international) grew by 8.9 per cent to Rs 21.83 trillion.

Capital Adequacy Ratio of the Bank at 12.83 per cent and CET-1 at 9.8 per cent continues to be above regulatory norms.

SBI's stock, which was ruling higher till afternoon session, fell by 3.8 per cent at Rs 304.8 per share on the BSE.