State Bank of India has reported a net loss in its first quarter of FY19, making this the third time in a row that India’s largest public sector bank has failed to move into the black.
The bank reported a net loss of Rs 4,876 crore versus profit expectation of Rs 448 crore. With this, the bank has had net losses to the tune of Rs 15,010 crore in the last three quarters.
The number are startling because on the face of it, the bank has had a good run. Net Interest Income is up nearly 24 percent, with net interest margins coming in at an 8-quarter high. The bank has also managed to not just arrest the growth of, but make a significant dent in, non-performing assets on its books -- gross NPAs have declined to 10.7 percent from the 10.9 percent seen in the fourth quarter of FY18.
Sure, loan growth remains in the mid-single digits, as the bank continues to feel the stress of elevated slippages when read as a percentage of accounts that have not been on the bank’s watch-list.
Slippages refers to the formation of bad loans over a particular period. Despite these elevated slippages, t
he bank’s performance has received support from resolutions in cases that have been sent to the National Company Law Tribunal under the Insolvency and Bankruptcy Code. Recovery in written-off accounts jumped 240 percent from year-ago levels, to Rs 2,426 crore.
The other big drag on the bottom line has been the bank’s decision to not spread out its mark-to-market losses over 4 quarters as permitted by the RBI, but recognise the entire Rs 5,893 crore burden in one fell swoop. So treasury losses took a hefty bite out of SBI’s operating profits.
Net Interest Margin improved from 2.36 percent in Q1FY18 to 2.8 percent in Q1FY19, the highest in 2 years. International net interest margin was at a multi-year high of 1.47 percent.
The bank has made some significant progress in reining in Gross NPAs by 4.7 percent QoQ to Rs 21,2840 crore. This has happened largely because overall slippages are down 56.3 percent at Rs 14,349 crore, and recoveries expanded exponentially to Rs 14,856 crore from Rs 85 crore in the previous quarter. The bank’s Gross NPA Ratio declined to 10.69 percent from 10.91 percent, and an increase in its provision coverage ratio to 69.3 percent from 66.2 percent helped bring strength to the balance sheet.
As far as the street was concerned, a gross slippage number below Rs 15,000 crore should have received a big thumbs up. And it would have, considering the Rs 14,349 crore number is less than half of what it was in either the previous quarter, or in the year-ago period. However, the fact that this quarter has seen a spike in slippages from accounts that werer not previously on the bank’s watchlist is a tad worrying. As things stand, over 76 percent of the gross slippages in the first quarter came from non-watchlist accounts; that’s on the higher end of the range set by the last 6 quarters.
Adding to the unease is the fact that the value of the accounts on SBI’s watchlist (these are accounts which the bank believes could turn into NPAs) remains elevated at Rs 22,289 crore, even it is lower than the Rs 25,802 crore recorded in the fourth quarter of the previous fiscal year, and makes up just 1.12 percent of thebook against the earlier 1.33 percent.
SBI’s operating profit has come in at Rs 11,973 crore, up 0.8 percent year-on-year, but down 24.6 percent quarter-on-quarter. This lower operating profit, coupled with higher provisions, has meant that the bank has recorded not only its third consecutive quarterly net loss, even if this loss is significantly lower than the net loss recorded in the previous quarter.
The bank has also seen considerable success in recovering money from key accounts that have been sent to the NCLT. From accounts in its first list, the bank has recovered Rs 14,513 crore. However, its exposure to the accounts in List-2 have not seen any marked movement. The bank has also increased its provisioning for accounts in List-2, which is being read as a signal that the bank does not expect to recover a significant amount from these accounts through the NCLT’s resolution process.
Despite loan growth coming in above 5 percent year-on-year, SBI’s fee income grew just 2.2 percent from a year-ago levels. This fee income was, however, 41 percent lower than levels recorded in the previous quarter. Add to this the bank’s treasury losses, and other income dropped 16.6 percent year-on-year and 46.5 percent quarter-on-quarter to Rs 6,679 crore.
The bank’s operating efficiency also deteriorated, with cost-to-income ratio increasing to 58 percent from 53.6 percent percent a year ago, and 51.1 percent a quarter ago.The other pain point comes in the form of a sharp decline in its international loan book. International advances slipped 4.4 percent year-on-year to Rs 2,66,728 crore. Compared to the advances given out in the fourth quarter of FY18, that’s a drop of 11.7 percent.