State Bank of India's asset quality deteriorated for the fifth consecutive quarter. This dulls what could otherwise have been a good quarterly performance. SBI has recorded better profit growth than other public sector banks. It is also among the few banks that have reported expansion in net interest margins (NIM) this quarter.

The gross non-performing assets (NPA) at the end of December rose by more than 70 per cent year-on-year. The NPA rise from September quarter was 18 per cent, against 8 per cent average growth in other public sector banks. Slippage from restructured asset portfolio, small and medium enterprises segment and agriculture loans were the main reason for the bad loans.

The bank is in the process of cleaning up its loan book and expects much lower delinquencies going forward. For instance, it plans to reduce delinquencies by obtaining guarantees from SIDBI for its SME portfolio. The current gross NPA ratio plus the standard restructured assets account for around 7.6 per cent of the total advances of the bank.

Robust business

The standalone net profit growth was 15.3 per cent, mainly driven by core net interest income growth of 26 per cent. The net interest margin improved from 3.8 per cent in the September 2011 quarter to 4.05 per cent in the December quarter.

The net interest income growth was supported by both advances growth and expansion in net interest margins. The yields on advances rose more than the rise in cost of funds.

A strong, low-cost deposit base and retirement of high-cost bulk deposits were the reasons for limiting the rise in cost of funds. The low-cost deposit ratio of 47.3 per cent continues to be among the best in the industry.

Capital saving

According to the management, the international margins for SBI also improved, thanks to the RBI increasing the ceiling for external commercial borrowing.

The tier-1 capital ratio of the bank improved marginally from 7.47 per cent to 7.59 per cent in spite of balance-sheet growing by 4.7 per cent sequentially. The bank had indicated it would put in place some capital saving measures such as export credit guarantee cover and SME credit guarantee. These measures may have resulted in improvement in capital adequacy.

The tier-1 ratio is likely to improve to more than 9 per cent by March 2012 as it ploughs back current year profits and gets a Rs 7,900-crore capital infusion from the Government.

>mvssantosh@thehindu.co.in

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