The elephant, as the former chairman of State Bank of India O P Bhatt used to call the bank, has stopped dancing. In fact, now it seems wary of speed.
Pratip Chaudhuri's clean-up act on May 17, when SBI's results showed that its profits had declined 99 per cent, surprised many. The question analysts were asking was - did the new SBI chairman need to make such sweeping provisions?
The answer was both yes and no.
Historically, SBI chairmen have preferred to start with clean chits. Both O P Bhatt and A K Purwar had taken similar steps.
In the first quarter after joining, they took 35 per cent and 28 per cent hit, respectively, on the bank's profits.
Chaudhuri seems to have trodden a similar path. But there was some additional burden on him.
His main burden: His predecessor, Bhatt, made lower provisions for employee benefits in the first three quarters.
Also, he delayed the provisioning for teaser home loan rates - raised from 0.4 per cent to 2 per cent by the Reserve Bank of India in October - by coming with a different product.
The underprovisioning for employee gratuity and retirement benefits led to a jump in the tax burden in the fourth quarter, when a big chunk of provisioning was done in one go.
The total tax burden was as high as Rs. 1,901 crore (Rs. 19.01 billion), against Rs. 977 crore (Rs. 9.77 billion) a year ago.
The other necessary provisioning was for the teaser rate portfolio. The home loan portfolio had swelled by Rs. 25,000 crore (Rs. 250 billion), since the launch of the teaser loan product.
Bhatt had, in December, changed the contours of the product.
The element of floating rate was added to what was a fixed loan product for the first three years. But concessions were offered.
And, though Bhatt tried his best to convince the central bank, it remained firm on its view that extra provisioning should be done for such a product - a burden of Rs. 550 crore (Rs. 5.5 billion) that had to be borne by the new chairman after discussions with RBI.
Besides these two necessary obligations, the new head of the bank had the option to adopt the software-based method to identify non-performing assets by September.
However, he took the plunge in the very quarter.
The government had given public sector banks six months, till September, to classify NPAs using technology under the Core Banking Solution system.
By using technology, the discretionary powers from the branch manager to classify defaulting accounts as an NPA would go away, as the software would flag any such case.
So, when SBI decided to use technology from the fourth quarter, it took an additional hit.
To put the numbers
in perspective, in the first three quarters, the rise in NPAs was from Rs. 19,535 crore [Rs. 195.35 billion] (March-end 2010) to Rs. 23,438 crore [Rs. 234.38 billion] (December 2010) - a rise of Rs. 3,903 crore (Rs. 39.03 billion) in nine months.