Bad loans & bond yields cut SBI Q1 net by 13.6%

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SummaryNPAs up 73 bps; global yield spike costs Rs 575 cr

State Bank of India (SBI) on Monday reported a fall in standalone profit for the three months to June 2013 against the backdrop of a weak economy, even as its asset quality deteriorated. The country’s largest lender also took a mark-to-market hit on its international investment portfolio on account of the rise in global bond yields.

SBI’s net profit fell 13.6% year-on-year to R3,241 crore on the back of a drop in the operating profit of 7.65% y-o-y to R7,551 crore. The bank’s net interest income rose a modest 3.5% y-o-y to R11,512 crore, while the net interest margin (NIM) for the domestic business dropped to 3.44% from 3.66% at the end of the March 2013 quarter. The SBI stock fell to R1,604.80 on the BSE, down 3.41% from its previous close.

The bank continued to grapple with asset quality concerns, reporting fresh slippages of R13,766 crore in the first quarter. Gross non-performing assets (NPAs) were higher at 5.56%, up 81 basis points over the January-March quarter, while net NPAs rose to 2.83%, up 73 basis points sequentially.

“Slippages have been the highest in the SME and agriculture segments, which has come as a surprise,” said SBI chairman Pratip Chaudhuri.

Slippages in the SME segment were as high as Rs 3,925 crore while those in the agriculture segment stood at Rs 3,245 crore. The bank, however, does not believe agriculture NPAs will spiral higher since the better-than-expected monsoon is expected to help keep rural incomes steady.

Despite the rise in NPAs, provisions for bad loans during the quarter were lower at Rs 2,265 crore, compared with Rs 3,974 crore in the previous quarter; NPAs in the agriculture segment required lower provisioning given the loans were backed by land assets, Chaudhuri explained.

The quantum of restructuring also remained high, with fresh restructured accounts adding up to Rs 5,000 crore, taking the bank’s total restructured book to Rs 57,698 crore.

“The pipeline for restructuring is about Rs 10,000 crore but that does not necessarily mean it will all show up in the second quarter,”Soundara Kumar, deputy managing director in-charge of stressed assets said. Sectors like iron and steel, roads and power were major contributors to the restructured accounts, Kumar confirmed.

Cumulatively, eight large banks including SBI are now sitting on a pipeline of restructured assets worth over Rs 25,000 crore, suggesting that asset quality pressures in the industry are far from over.

The bank also took a mark-to-market hit

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