SBI Q3 net dips 4.2%; confident of higher loan growth

The country's largest lender SBI on Thursday reported a 4.20 per cent decline in consolidated December quarter net at Rs 6,257.55 crore, largely because of a higher base in the year-ago period where it had benefitted from a Rs 4,500 crore one-off income.

On a standalone basis, the city-headquartered lender's net profit came in at Rs 5,196.22 crore as against Rs 5,583.36 crore in the year-ago period and Rs 4,574.16 crore in the preceding September quarter.

SBI chairman Dinesh Kumar Khara told reporters that the year-ago period had seen the resolution of the Essar Steel loans, resulting in an over Rs 4,000 crore interest income and Rs 500 crore other income benefit.

For the reporting quarter, its core net interest income grew 3.75 per cent to Rs 27,779 crore on the back of a 6.73 per cent credit growth and a 0.21 per cent contraction in the net interest margin to 3.12 per cent.

The bank, which controls over a fifth of the overall system, witnessed a healthy growth of over 15 per cent in retail advances. These loans now constitute 61 per cent of the overall book.

Khara said core personal loans are at 39 per cent of the book and the bank sees its share growing to 45 per cent in a year.

He said the bank has preferences like salaried and new to credit customers while making its choices, and will continue to grow this book without compromising on risk.

Its other income grew marginally for the quarter at Rs 9,246 crore as against Rs 9,106 crore in the year-ago period.

From an asset quality perspective, its proforma slippages -- loans which would have to be classified as gross non-performing assets but for the Supreme Court's standstill order -- stood at Rs 16,461 crore.

It received applications of Rs 18,125 crore of assets to be recast under a special dispensation introduced by the RBI.

Khara said the overall slippages and restructuring number stands at Rs 41,216 crore as of the nine-months ended December and the bank is confident of meeting its guidance of containing this number at Rs 60,000 crore for FY21.

From a credit cost perspective, Khara said it set aside money as provisions for the proforma slippages at the same level as that for regular NPAs.

It set aside Rs 2,071 crore for proforma slippages, Rs 814 crore for restructuring applications and added Rs 3,000 crore to take the general COVID-19 contingency to Rs 6,008 crore.

Its overall provisions and contingencies stood at Rs 10,342 crore as compared to Rs 7,252 crore in October-December 2019.

The reported gross NPA ratio was at 4.77 per cent as against 6.94 per cent last year, and would have still seen an improvement to 5.44 per cent if not for the apex court order.

Khara said the corporate accounts which have applied for restructuring stand at Rs 11,000 crore, spread across sectors.

Unlike its private sector rivals experiencing a surge in stress on retail assets, the focus on government employees has probably helped contain the recast requests from this segment at only Rs 3,900 crore while small business was at Rs 2,500 crore.

Its managing director C S Setty said the bank is confident of maintaining asset quality on its retail book going ahead as well.

On the future outlook on stress, Khara said it has minimal exposure to sectors in difficulty like textiles, hospitality and aviation, with each occupying around 1 per cent of the book.

Khara further said the bank is reviewing down its FY21 loan growth target to 7 per cent from the earlier 9 per cent due to slow demand from the corporate segment.

The bank has a preference only for the best-rated corporates in this segment, which led to a 2.23 per cent growth during the reporting quarter.

A bank official said the same would have been 8 per cent if credit alternatives like commercial paper and non-convertible debentures were to be included.

It has a pipeline of over Rs 30,000 crore in loan proposals, Khara said, admitting that not all proposals convert into actual lending.

Moreover, there is also a difference between drawdowns, he said, pointing out that while availment ratio in mid-corporate segment is at 50 per cent, the same in large corporate is a low 30 per cent.

The bank expects overall credit growth to rise to double-digit levels by the second quarter of FY22, Khara said.

He hoped the Budget's focus on infrastructure will drive the credit demand going forward, with sectors like iron and steel, cement and construction demanding loans.

Even with another development finance institution, which was announced in the Budget, SBI's infra lending will continue like in the past, he emphasised.

Khara said the bank will not have to provide more money if the Budget proposal of creating an asset restructuring company (ARC) or asset monetisation company to house dud assets fructifies, as its provisions stand at over 86 per cent for corporate accounts.

A senior bank official said while the detailed guidelines are yet to come out, it is understood that accounts of over Rs 500 crore will go to the bad bank.

The SBI chairman said the existing ARCs need not worry after the arrival of the bad bank, and need to more vigorously use the existing resolution frameworks.

He said the bank is yet to take a call on whether to allow more foreign ownership in its insurance subsidiaries, after the Budget announced raising of the FDI cap to 74 per cent.

The bank's cost to income ratio moved up by 0.80 per cent to 53.25 per cent on the back of increased costs that need to be borne because of an increased wage bill, Khara said.

Its overall capital adequacy stood at 14.50 per cent as of December 31.

The bank scrip gained 5.73 per cent to close at Rs 355.10 apiece on the BSE at the end of trade on Thursday as against gains of 0.71 per cent on the benchmark.

Photograph: Rupak De Chowdhuri/Reuters