SBI under-reported its FY19 NPAs by Rs 11,932 crore, find RBI auditors

Reserve Bank of India (RBI) auditors have found that the country's largest bank, State Bank of India (SBI), under-reported its non-performing assets (NPAs) for 2018-19 by Rs 11,932 crore, and made Rs 12,036 crore less provisions. As a result, the bank's reported profit of Rs 862 crore for the fiscal year now stands at a loss of Rs 6,968 crore.

However, the bank's stock did not react much, falling only 1.04 per cent to close at Rs 313.45 on the BSE, as the bank subsequently made good much of this gap through upgrade or recovery, as well as by additional provisioning.

According to Securities and Exchange Board of India (Sebi) rules, a bank needs to disclose its material divergence within a day after receiving final risk assessment report of the RBI. Earlier, banks used to report the divergences much later in their annual reports.

In a filing with the exchanges, SBI commented that after subsequent slippages and upgrade during the current fiscal year, the remaining impact on gross NPAs during the third quarter stands at Rs 3,143 crore. The impact on net NPA remains way lower at Rs 687 crore for the third quarter that would end in December. In the same quarter, the impact on provision will be Rs 4,654 crore. "Even with such impact, SBI expects credit cost trajectory for the full year to remain largely unchanged," said Nitin Aggarwal, senior analyst at Motilal Oswal.

"The stock has been falling for the past few days, so the impact on the stock was not as severe after the disclosure. The increase in net NPAs also stands minimal," said Aggarwal.

According to another analyst, the market is not bothered much because with the resolution of Essar Steel, SBI is likely to write back as much as Rs 12,000 crore of provisions out of about Rs 14,000 crore provisions done. When that happens, the divergence impact would get nullified. However, positive news around Essar Steel resolution was partially priced in in the stock.

"The stock should fall to Rs 300 a share, or below, after the divergence reported," the analyst said.

For the full fiscal, the bank had reported gross NPAs of about Rs 1.75 trillion, but the RBI's assessment was that it should have been about Rs 1.85 trillion.

Similarly, it reported a net NPA of Rs 65,895 crore, but the RBI's assessment showed its net NPAs should have been Rs 77,827 crore. Provisions made by the bank in 2018-19 was about Rs 1.07 trillion, but it was needed to provide about Rs 1.19 trillion.

As the RBI submits its risk assessment reports, banks are reporting divergences. Most banks have reported steep drop in profits, or even losses for the fiscal after the divergence.