Good show: Modest rise in spends, higher yields help boost SBI numbers

Though loan growth slowed to just 8.4% year-on-year, State Bank of India (SBI) on Friday reported a good set of profits for Q2FY20, thanks to higher yields and a modest rise in expenses of just 7% year-on-year. At a time when interest rates are expected to trend down, SBI’s loan yields in Q2FY20 were 8.69%, higher than the 8.56% in the June quarter and 8.43% in September 2018.

The bank’s cost of deposits in Q2FY20 was 5.02% lower than the 5.07% in the June quarter and 5.1% a year ago. The net profit rose to Rs 3,102 crore against Rs 945 crore a year ago. Profits before tax rose to Rs 5,060 crore from Rs 1,813 crore in Q2FY19, including exceptional items. The operating profit before contingencies and provisions stood at Rs 14,714 crore in Q2FY20, up 19% y-o-y helped by the very modest increase in expenses. Provisions for the quarter rose to Rs 13,139 crore from Rs 12,092 crore up 8.7%.

SBI’s net interest income — the difference between interest earned and interest expended — rose 17.7% y-o-y to Rs 24,600 crore. The domestic net interest margin (NIM) —a key measure of profitability — rose 21 basis points (bps) sequentially to 3.22%.

Rajnish Kumar, chairman, SBI, told reporters after the bank’s results that the gains from the sale of stake in SBI Life Insurance stood at Rs 4,500 crore. “We have upfronted the provisions due to a failed power sector asset where we have taken provisions of Rs 2,600 crore.

In respect to a stressed NBFC (non-banking finance company), we made a provision worth Rs 900 crore,” he said. SBI’s provision coverage ratio (PCR) improved to 81.23% in September 2019 from 70.74% a year ago. It holds 74% worth of provisions on its corporate book. SBI’s asset quality improved in the September quarter, with gross NPAs as a percentage of gross advances falling 34 bps sequentially to 7.19%. The net NPA ratio fell 28 bps quarter-on-quarter (q-o-q) to 2.79%.

Slippages dropped 46% sequentially to Rs 8,805 crore.

Kumar said the baseline scenario for slippages is in the range of Rs 32,000-33,000 crore and there could be exceptions to that. “If the baseline is Rs 32,000 crore or Rs 34,000 crore for the bank, it is 1.6% of our current loan book and then there are slippages of different kind for which we should have provisions,” he observed, adding, “ I’m not talking quarter on quarter… But ultimately, we have reached a situation where our gross slippages, in not so good circumstances, are not likely to exceed 2%.”

Recoveries and upgrades in Q2FY20 stood at Rs 3,931 crore. Its total deposits grew 8.05% y-o-y to Rs 30.33 lakh crore in the same period. While the bank’s corporate loans grew 2.78% y-o-y to Rs 7.66 lakh crore, loans to individuals grew 19% y-o-y to Rs 6.85 lakh crore.

Kumar noted that the loan mix at the bank had shifted, with 60% of the loan book now comprising retail loans. “As the utilisation in working capital limits improves, the performance on the advances front will also improve. The ratio could then again change to 58:42,” he said.

SBI’s current account savings account (CASA) ratio stood at 45.13% as on September 30, down from 45.27% in the year-ago quarter. In absolute terms, Casa deposits grew 8% y-o-y to Rs 13.26 lakh crore.

Shares of SBI ended at Rs 281.60 on the BSE on Friday, up 7.19% from their previous close.