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.