November 14, 2013 Last Updated at 00:57 IST
BS Reporter | Mumbai
Netprofit slumps 35%, but stock gains as pace of bad loan growth slows
The fear of history repeating itself had kept investors on the edge as Arundhati Bhattacharya, the new chairman of State Bank of India, prepared to announce the bank’s maiden earnings under her. There were enough reasons for the nervousness, as new chiefs and poor profitability have become almost a norm for public-sector banks, Bhattacharya’s two predecessors included.
Bhattacharya, too, followed the quarterly-result tradition; she announced on Monday the bank had posted its steepest quarterly profit fall in more than two years, as non-performing loans increased.Net profit slumped 35 per cent to Rs 2,375 crore in the quarter ended September. That undershot analysts’ average expectation of about Rs 2,700 crore. The share of net non-performing loans in total assets rose to 2.91 per cent, from 2.83 per cent in the preceding quarter.
Yet, the SBI stock initially rose more than three per cent before closing 1.34 per cent higher on BSE, as the pace of bad loan growth slowed. In that, the market saw a glimmer of hope. During the July-September quarter of the current financial year, fresh slippages stood at Rs 8,365 crore — down sharply on a sequential basis from Rs 13,766 crore. The bank reported a steady increase in upgrades and cash recovery during the quarter and arrested the sharp pace of growth in NPAs. Investors also took comfort from the fact that SBI had pro-actively increased provisions on stressed assets.
The tone of the new management, however, was cautious, as the banking sector was still grappling with pressure on asset quality.
“There is still more pain in the system and there are no bright signs. The stress is the most in mid-sized companies and larger SMEs (small & medium enterprises). Retail has shown resilience and, in fact, NPA in this sector has come down,” Bhattacharya said in her post-earnings press briefing.
Gross non-performing asset ratio deteriorated 49 basis points from a year earlier to 5.64 per cent, while net bad loan ratio increased 47 basis points to 2.91 per cent at the end of September.
Higher loan loss provisions, which increased 44 per cent year-on-year to Rs 2,645 crore, mainly due to higher regulatory standard provision requirement, dragged profit down. The decline in profit was also due to a 79 per cent increase in standard asset provisioning to Rs 448 crore, coupled with a 106 per cent increase in cost of borrowing (due to a 200-bp hike in marginal standing facility rate to 10.25 per cent in mid-July). Banks had started availing of funds from the MSF window, as the repo window was capped at 0.5 per cent of the banks’ net demand and time liabilities.
Bhattacharya, too, followed the quarterly-result tradition; she announced on Monday the bank had posted its steepest quarterly profit fall in more than two years, as non-performing loans increased.Net profit slumped 35 per cent to Rs 2,375 crore in the quarter ended September. That undershot analysts’ average expectation of about Rs 2,700 crore. The share of net non-performing loans in total assets rose to 2.91 per cent, from 2.83 per cent in the preceding quarter.
Yet, the SBI stock initially rose more than three per cent before closing 1.34 per cent higher on BSE, as the pace of bad loan growth slowed. In that, the market saw a glimmer of hope. During the July-September quarter of the current financial year, fresh slippages stood at Rs 8,365 crore — down sharply on a sequential basis from Rs 13,766 crore. The bank reported a steady increase in upgrades and cash recovery during the quarter and arrested the sharp pace of growth in NPAs. Investors also took comfort from the fact that SBI had pro-actively increased provisions on stressed assets.
The tone of the new management, however, was cautious, as the banking sector was still grappling with pressure on asset quality.
“There is still more pain in the system and there are no bright signs. The stress is the most in mid-sized companies and larger SMEs (small & medium enterprises). Retail has shown resilience and, in fact, NPA in this sector has come down,” Bhattacharya said in her post-earnings press briefing.
Gross non-performing asset ratio deteriorated 49 basis points from a year earlier to 5.64 per cent, while net bad loan ratio increased 47 basis points to 2.91 per cent at the end of September.
Higher loan loss provisions, which increased 44 per cent year-on-year to Rs 2,645 crore, mainly due to higher regulatory standard provision requirement, dragged profit down. The decline in profit was also due to a 79 per cent increase in standard asset provisioning to Rs 448 crore, coupled with a 106 per cent increase in cost of borrowing (due to a 200-bp hike in marginal standing facility rate to 10.25 per cent in mid-July). Banks had started availing of funds from the MSF window, as the repo window was capped at 0.5 per cent of the banks’ net demand and time liabilities.
Profit on sale of investments was near-flat, at Rs 236 crore, while foreign-exchange earnings declined 53 per cent to Rs 320 crore. Growth in fee income on a year-on-year basis was also nearly flat, while net interest income grew only 11.64 per cent to Rs 12,251 crore.
The bank delivered a surprise on the net interest margin front by reporting 3 basis point rise sequentially to 3.19 per cent. However, the management declined to give any guidance on the margin front.
“We do not want to give guidance on interest margins and turning the tide to report higher profits, as the market is volatile. We will plan (work) for the long term, rather than giving a short-term outlook,” Bhattacharya said. The lender also expects credit growth to moderate to 16-18 per cent for the financial year, from 19 per cent recorded in September.
“SBI’s reported profit after tax was in line with estimates and an improvement in net interest margin was a positive surprise, while lower slippages than the previous quarter and the provisions were in line with expectations. Overall, it was a mixed performance and we retain our positive stance on the company due to reasonable valuations,” said Rikesh Parikh, vice-president (corporate broking), Motilal Oswal Securities.
Analysts said Bhattacharya would be under pressure to tame non-performing loans and reverse the weakening profit growth.
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