SBI associates post heavy losses in September quarter

The five associate banks of State Bank of India (SBI) have booked heavy combined loss of Rs 3,096 crore in the financial year’s second quarter ended September, on a sharp rise in provisions for stressed loans.

This is an outcome of aligning the treatment of weak and bad loans on the books of associates with those for the SBI group, ahead of the proposed merger with the parent. Collectively, they had posted net profit of Rs 870 crore in July-September 2015. The highest loss this time was reported by State Bank of Patiala (SBP) at Rs 1,340 crore, followed by State Bank of Hyderabad (SBH) at Rs 776 crore.

Provisions and contingencies, including the amount set aside for non-performing loans, grew five times to Rs 6,679 crore in Q1 FY17 from Rs 1,235 crore in Q2 FY16. The big hit to the bottom line in Q2 FY17 has not come as a surprise. Arundhati Bhattacharya, chairman, State Bank of India, had signalled about a hard quarter way back in the middle of August. “Asset quality reviews (AQRs) at associates are substantially different from ours (at SBI). And we believe, as a group, it is important to align AQR numbers. At the end of the day, something that is stress with us will become stress with them at some point of time,” she had said.

A part of the AQR alignment done in the first quarter had impacted the bottom line. The balance will be carried out in the current quarter, ending September, impacting profitability.

State Bank of India is targeting the merger of five banks — SBH, SBP, State Bank of Jaipur and Bikaner (SBBJ), State Bank of Mysore (SBM) and State Bank of Travancore (SBT) — in year ending March 2017. SBI had infused Rs 2,400 crore in SBP in the second quarter to meet capital adequacy norms.

Rating agency ICRA had in October said given SBP ownership and the proposed merger, SBI will support SBP in maintaining adequate capitalisation and liquidity. SBI has regularly infused capital in SBP during 2014-16. The fresh NPA generation in FY2017 is expected to remain high, given the high vulnerability that persists in the bank’s large corporate book and its high standard restructured advances, ICRA said.

State Bank of India