Finance

How SBI's 7% bad loan divergence will impact India's biggest lender. Macquarie answers

Updated : December 11, 2019 01:46 PM IST

The State Bank of India (SBI) on Tuesday reported about Rs 12,000 crore or 7 percent divergence in their bad loans for the last fiscal.

According to brokerage firm Macquarie, the sum is not large but the key number to track would be return on assets (RoA).

As per Macquarie, the management’s guidance of touching 1 percent RoA by FY21 is far-fetched.

The country's largest lender the State Bank of India (SBI) on Tuesday reported about Rs 12,000 crore or 7 percent divergence in their bad loans for the last fiscal. According to brokerage firm Macquarie, the sum is not large but the key number to track would be return on assets (RoA).

As per the assessment done by the Reserve Bank of India (RBI), the gross NPA (GNPA) of the SBI was Rs 11,932 crore more than the bank initially reported.It stood at Rs 184,682 crore against the Rs 172,750 crore reported by the bank for 2018-19, SBI said in a regulatory filing.

Similarly, the net NPA was Rs 77,827 crore as compared to the disclosed figure of Rs 65,895 crore, reflecting the divergence of Rs 11,932 crore, it said. As a result, the bank has to make additional provisioning of Rs 12,036 crore in the balance sheet and the notional loss would have been at Rs 6,968 crore.

The global brokerage, in a research report, informs how this divergence will impact the lender.

Provisioning and its impact on RoA need to be seen, it said. Though the impact at the GNPA level is marginal, the provisioning impact on Q3FY20 is likely to be around Rs 4,650 crore due to this divergence, the brokerage noted. To put in context, this is almost 40 percent of the quarterly run-rate of Rs 11,000 crore of provisions.

The bank's management had guided for a 40-50 basis point RoA for FY20 (estimate). "We are not sure whether management has factored these additional provisions arising out of the divergence into their guidance. We are currently at 44 bps ROA for FY20E," the report mentioned.

As per Macquarie, the management’s guidance of touching 1 percent RoA by FY21 is far-fetched. SBI will continue to be beleaguered by SME and Agri NPLs and such “one-off” accounts are bound to recur every now and then, the brokerage assessed.

For the year ended March 2019, SBI reported a net profit of Rs 862 crore after reporting losses in the last two years, helped by higher net interest income and improvement in asset quality.

Earlier in October this year, the Securities and Exchange Board of India (Sebi) had directed stock exchange-listed banks to disclose bad loan divergences with the RBI's assessment within a day of receiving a final report from the central bank. Recently, many other banks, including Yes Bank, Indian Bank, Lakshmi Vilas Bank, Union Bank of India and UCO Bank also reported divergence in bad loans for FY19.

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How SBI's 7% bad loan divergence will impact India's biggest lender. Macquarie answers

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