State Bank of India (SBI) on Friday reported a net profit of Rs 1,264 crore in the March quarter of FY16, down 66% from a year earlier, on the back of higher loan loss provisions. Provisions for bad loans more than doubled on a year-on-year (y-o-y) basis to Rs 12,139 crore in Q4FY16. SBI chairman Arundhati Bhattacharya said the bank had put upfront much of the pain that may have occurred. \u201cI have said conservatively we expect around 70% of the assets on the watch list to turn bad. However, we believe that if the economy starts doing better and if demand comes back, the slippage into non-performing assets could be as low as 30%,\u201d Bhattacharya said. The bank has created a watch-list of accounts worth R31,352 crore and expects 70% of it to slip into non-performing category. The chairman observed that not all the accounts on the watch-list are manufacturing units that are closed down or roads on which nobody is driving. \u201cThese are actually accounts which are still functional but stressed because they don't have enough cash generation,\u201d she said. \u201cWe will use all the tools for recovery and lot of efforts is being given internally for it. We have our stressed asset management group (SAMG) and they are working very hard,\u201d Bhattacharya said. Of the total slippages of Rs 25,381 crore in the quarter, close to Rs 20,000 crore originated from the large and mid-corporate segments. The sectors under its watch-list are power (Rs 4,748 crore), iron and steel (Rs 4,299 crore), engineering (Rs 3,574 crore), and oil and gas (Rs 3,396 crore), among others, and belong to the special mention account-2 (SMA-2) category or accounts where repayments are due between 60 and 90 days. The watch-list accounts for 2% of its total loan book. Bhattacharya added the lender has classified certain accounts as non-performing under the AQR (asset quality review) despite those accounts being classified as standard on SBI\u2019s books. \u201cWe have classified certain accounts as NPA because they are part of the AQR in other banks which are members of SBI's consortiums,\u201d the chairman said, adding that `9,000 crore of NPAs in the quarter were the result of the Reserve Bank of India\u2019s review. Operating profit of the public sector lender rose 11.2% y-o-y to Rs 14,192 crore, while its domestic net interest margin (NIM) fell 27 basis points (bps) y-o-y to 3.27%. SBI's net interest income \u2014 the difference between interest earned and interest expended \u2014 rose 3.94% y-o-y to Rs 15,291 crore. SBI\u2019s asset quality worsened in the March quarter, with gross NPAs as a percentage of gross advances rising 225 bps y-o-y to 6.5%. The net NPA ratio also witnessed a y-o-y rise of 169 bps. The largest chunk of NPAs came from the mid-corporate segment, which reported a gross NPA ratio of 17.12%, followed by agriculture at 6.93%. Surprisingly, its large corporate book, which boasted a bad loan ratio of 0.54% in FY15, rose to 6.27% in FY16. Its stressed advances \u2014 gross NPA plus restructured \u2014 stood at 9.09% in Q4FY16 from 8.43% in the same period last year. Recoveries in Q4FY16 were at Rs 1,627 crore and the bank also upgraded loans worth `97 crore from non-performing to standard. Asked about the merger of SBI subsidiaries with itself, she said that there would be challenges but added, \u201cI can assure you that the merger will not have any big impact either on capital or on the non-performing assets of the bank. We are well position for the merger to take place.\u201d Shares of India\u2019s largest bank rose as much as 9.9% on the BSE in intra-day trade, before ending at Rs 195.50, up 6.42%. On a year-to-date basis, SBI shares are down 13% against a 2% rise in the Sensex in the same period.