Money & Banking

Elevated additions to bad loans and large watch-list spell trouble for SBI

Radhika Merwin BL Research Bureau | Updated on August 11, 2018 Published on August 10, 2018
In August, the lender had put two non-performing assets worth Rs 2,490 crore for sale to ARCs/FIs.

In August, the lender had put two non-performing assets worth Rs 2,490 crore for sale to ARCs/FIs.   -  REUTERS

Gross addition of ₹14,300 cr to its outstanding bad loan book of over ₹2-lakh cr is worrisome

For SBI, its merger with its associate banks has been accentuating the PSB’s bad loan troubles since the June quarter of last year. But sadly, not much appears to have changed on the asset quality front over the past four quarters.

The bank reported huge slippages during FY18 when the RBI’s February circular on stressed assets further accelerated the NPA recognition exercise. But despite such steep slippages, SBI is not out of the woods yet.

Still elevated additions to bad loans, a large watch-list, and weak core performance in the latest June quarter, indicate that recovery in earnings for SBI is likely to be long drawn with not much respite in the current fiscal.

After the one-time impact of the RBI’s circular in the March quarter, when it reported huge slippages to the tune of ₹33,600 crore, the bank reported lower slippages of ₹9,984 crore in the latest June quarter.

While the optically lower slippage figure appeased the market initially, subsequent disclosure of actual additions to bad loans put an end to the euphoria. For one, aside from the fresh slippages, SBI also reported increase in outstanding NPA accounts to the tune of ₹4,300 crore.

Given that the bank reported an increase in outstanding NPAs of about ₹5,500 crore in the whole of FY18, the June quarter’s number is far from comforting.

Hence, barring quarters when there were one-off huge additions to bad loans – such as the RBI’s asset quality review in December 2015, SBI’s merger with associate banks last April and the RBI’s new framework for stressed assets this February – the accretion of ₹14,300 crore (fresh slippages plus increase in outstanding NPAs) in the June quarter is at an elevated level, going by the past trend.

Also, the bank still has around ₹24,600 crore accounts under watch-list – this includes all corporate SMA2 (where payments are overdue by 61-90 days) and stressed SMA1 accounts (overdue by 31-60 days). This large stressed assets pool remains a key cause for concern in the coming quarters.

The biggest joker in the pack is the RBI’s February diktat that requires banks to report even one-day defaults and draw up resolution plans within 180 days, failing which banks will have to refer the case for insolvency under IBC. The deadline for the resolution for the first set of such defaulting cases is drawing near – end of August.

For banks such as SBI that are saddled with large stressed power assets that require longer time to resolve, the extent of impact is still uncertain. Of SBI’s watchlist as of June 2018, about ₹10,000 crore pertains to the power sector.

Hence, there could be more pain ahead for the largest lender. What is also not comforting is that of the slippages this quarter, only ₹3,700 crore pertains to the corporate sector. The remaining – ₹6,200 crore – has come from other segments such as agri and retail. Non-corporate slippages in the latest June quarter appear to be the highest (barring the post-merger impact in June quarter last year) in the last two years.

Weak core performance

SBI has also been losing market share to its private peers over the past year. Domestic advances have grown by a tepid 7 per cent Y-o-Y in the June quarter. SBI’s 24 per cent growth in net interest income in the June quarter has been aided by a one-off recovery and, hence, the sustainability of this trend remains uncertain.

Published on August 10, 2018
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