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In the recent quarterly results, investors have been evaluating public sector banks only on one metric - the pace of addition to bad loans.
State Bank of India managed to please investors by reporting a 39 per cent decline in bad loans added for the quarter. This is why the markets also shrugged off the doubling of new restructured loans. Even the 35 per cent decline in profits over last year didn’t seem to matter.
That said, the growth in SBI’s core net interest income did improve this quarter, thanks to better credit off-take. SBI’s loan growth of 19 per cent was in fact a tad higher than large private sector players such as HDFC Bank and ICICI Bank. However, SBI’s loan growth has been led by the large and mid-corporate segments. This is in stark contrast to private banks for whom high-yielding and secured retail loans led the growth. Axis Bank and ICICI Bank witnessed 37 per cent and 20 per cent growth in retail loans. But in case of SBI it was the sharp rise in lending to the large (36 per cent) and mid-corporate segment (28 per cent) that led the growth.
The concern here is the significant portion of SBI’s new loans flowing from stressed sectors such as infrastructure (27 per cent growth), and iron and steel (29 per cent growth). A large portion of its loan delinquencies even this quarter came from the SME, mid-corporate and agricultural segments. The gross non-performing assets as a proportion of loans in each of these segments is high at 10.2 per cent, 9.1 per cent and 11 per cent.
While SBI has witnessed lower slippages during the September quarter, consistency in performance will be critical given its high exposure to stressed sectors. The non-performing assets now account for a fourth of the total restructured book, which is indicative of higher risk on the restructured assets.
Hence, stressed assets still elevated at nine per cent of loans, remain an overhang on the SBI stock. The return on equity has dipped to 12 per cent in the first half of 2013-14 against 18 per cent a year ago.
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