The country’s largest lender State Bank of India (SBI) on Saturday reported a 35% year-on-year (YoY) decline in its net profit for the quarter ended December at Rs 9,164 crore, impacted by higher pension costs and wage revisions. The Q3FY24 net profit was lower than Bloomberg consensus estimate of Rs 13,326 crore for the reporting quarter.
The bank made Rs 7,100 crore of one-time expense for providing pension at a uniform rate of 50% for all pensioners, and for providing ex-gratia benefit and neutralisation of dearness relief to all pre-November 2002 retirees and family pensioners.
The Indian Banks’ Association (IBA) and bank unions in December agreed on a 17% wage hike for state-owned bank employees. Accordingly, SBI made Rs 6,313 crore of incremental provisions during Q3 for the revision and has cumulatively provided a total amount of Rs 15,207.82 crore till December 31 towards the settlement. The lender will make another Rs 5,409 crore of provisions in Q4 for wage revision, chairman Dinesh Khara said in a post-earnings conference.
FE had in January first reported that after making cumulative provisions to the tune of Rs 9,000 crore till Q2FY24, SBI will likely make additional provisions of Rs 11,000 crore towards meeting 17% wage hike revision in H2FY24.
In-line with industry trends, SBI’s net interest income (NII)— difference between interest earned and expended—grew at a slow pace of 5% YoY to Rs 39,816 crore, due to stiff “market conditions” wherein lenders are chasing deposits aggressively to match pace with credit growth, thereby sacrificing on margins. SBI’s net interest margin, a key indicator of lenders’ profitability, moderated 28 basis points (bps) YoY and 7 bps sequentially to 3.22% in Q3FY24. The NIM will likely be stable from hereon and if at all it moderates, it will fall only by 2 bps-3 bps, Khara said, adding that deposit rates have largely peaked and overall interest rates may start moderating in Q1FY25.
The lender’s advances rose 14% YoY to Rs 35.84 trillion as on December 31 and will continue to grow 14%-15% going ahead, Khara said. Retail personal loans grew 15% YoY to Rs 12.96 trillion, while corporate loans grew 11% YoY to Rs 10.24 trillion. The bank is seeing higher credit offtake by the corporate sector and is seeing draw down of credit limits by such entities. SBI has nearly `4.6 trillion of corporate loans in pipeline, 75% of the total is from private sector and remaining proposals are from government-owned companies, Khara said.
The bank’s overall deposits rose 13% YoY to Rs 47.62 trillion as on December 31. Share of low-cost current account and savings (CASA) account , however, moderated to 41.18% during Q3FY24 from 44.48% in corresponding period last year. The bank is targeting mobilising current accounts from trade and commerce sector going ahead, as against government institutions, Khara said.
“SBI has reported Q3FY24 wherein largely one-off items dragged the performance. Adjusted for this, the overall earnings remained healthy driven by lower credit cost despite weak core operating performance,” said Rahul Malani, banking analyst, Sharekhan by BNP Paribas.
While lower credit cost and strong loan growth momentum are positives for the lender, lower NII, core fee income and higher operating expenses are the few negatives for the bank, he said.
On asset quality front, SBI’s gross and net non-performing asset (GNPA, NNPA) ratio moderated to 2.42% and 0.64% during Q3 from 2.55% and 0.64% a quarter ago, respectively. Credit cost, or capital set aside for potential bad loans, was stable at 0.25%. The lender separately created Rs 240 crore of provisions to comply with the Reserve Bank of India’s (RBI) diktat to lenders on either winding down or providing for full exposure which lenders have to alternative investment funds (AIF) who have made a downstream investment in the borrower company of the bank.
SBI is open to acquiring merchant customers of Paytm Payments Bank, Khara said. However, Paytm chief Vijay Shekhar Sharma or the company management has not yet held talks with SBI related to the matter.
SBI’s capital adequacy ratio stood a 13.05% as on December end and the bank may look to raise equity capital in case of pace of loan growth being higher than that of return on earnings (RoE). Further, the bank will also claw back expected Rs 40,000 crore of profits to its capital position post end of Q4FY23, Khara said.