FE Editorial : Banking on SBI

Written by The Financial Express | Updated: May 19 2012, 08:00am hrs
In an otherwise sterling set of Q4 numbers reported by SBI which resulted in its stock rising 5%, the only figure that is disconcerting is that for restructured loansloans recast rose to R5,134 crore in March from R2,100 crore in the December quarter. Nevertheless, after some anxious quarters, the bank seems to be back on track although the managements claim that it is on top of the NPA problem may be wishful thinking. But theres no doubt the net profits for the March quarter, of R4,050 crore, are stunning and way above the Streets estimates as are the strong net interest margins (NIM) of 4.2%clearly the bank is able to lend profitably and borrow at a reasonable cost despite having the lowest base rate in the industry and is leveraging its branch network to the hilt. As compared to March 2011s profits of R21 crore, profits are up 200 times, though the management denies this was due to aggressive provisioning following the entry of a new chairman last yearwhile provisioning in March 2012 was R1,017 crore less than in March 2011, that between March 2010 and March 2011 rose R1,808 crore.

SBIs improved asset quality is a pleasant surprise with gross NPAs having come off by 20 bps sequentially over the December quarternet NPAs have fallen 40 bps. Fresh slippages have fallen to R4,300 crorethe R8,100 crore, for the December quarter had shocked the Street. While SBIs management seems confident it has won the war over NPAs, the current economic environment warrants greater prudence. Though the bank has raised provisioning and contingencies to R3,140 crore in March from R2,407 crore in December, perhaps this could be on the lower side. While restructured loans more than doubled to R5,134 crore thanks to the Kingfisher and Air India accounts (RBI has allowed Air India to be treated as a standard asset curiously), the management believes that of the total restructured book of R37,000 crore, only a small fraction is at riskRBI deputy governor, Anand Sinha recently commented that typically around 15% of restructured loans tend to turn bad. Fortuitously, unlike other state-owned banks, SBI doesnt have too much exposure to SEBs. At Bank of Baroda, restructured loans totalled R5,300 crore in the March quarter with R2,000 crore alone being accounted for by SEBs. Things were worse at Punjab National Bank where restructured loans jumped to R8,600 crore or nearly three percent of the outstanding loans; SEBs soaked up some R4,700 crore. Though SBIs tier-1 capital is now 9.79% (thanks to better performance and a R8,000 crore capital infusion) compared to 7.7% when Moodys downgraded it, the adverse economic environment where NPAs are rising fast may give Moodys reason to reject SBIs request for an upgrade.