Money & Banking

More days of pain ahead for SBI

Radhika Merwin BL Research Bureau | Updated on May 22, 2018 Published on May 22, 2018

The addition to bad loans has been higher than the levels witnessed after the RBI’s asset quality review exercise in FY16 and at the time of SBI’s merger with its associate banks last April   -  REUTERS

The long watch-list to the tune of ₹25,800 cr opens the possibility of more slippages in the coming quarters

For SBI, the country’s largest lender, that has reported the highest-ever quarterly slippages, bad loan worries seem far from over.

Thanks to the RBI’s new framework for stressed assets that essentially does away with all the old restructuring schemes, the bank has reported fresh slippages to the tune of ₹33,670 crore in the latest March quarter.

The addition to bad loans has been higher than the levels witnessed after the RBI’s asset quality review exercise in FY16 and at the time of merger with its associate banks last April.

But, despite the sheer size of the slippages in the March quarter, the NPA recognition cycle does not appear to have completely bottomed out. SBI still has outstanding accounts to the tune of ₹25,800 crore under its watch-list.

Slippages from these accounts in the coming quarters could continue to hurt earnings.

Also, the bank’s expected time-line for resolution of NCLT cases appears to be longer than anticipated earlier. This could also weigh on earnings in FY19.

For most PSU banks, additions to bad loans peaked in the March to September 2016 quarter, after the RBI’s asset quality review exercise.

Stressed book

For SBI, the merger with its associate banks continued to weigh on its asset quality through FY18. The RBI’s February diktat on stressed assets has accentuated the bad loan issue for the bank.

To put things in perspective, at about ₹2.2 lakh crore, SBI’s gross non-performing assets is now higher than the loan book of many banks. Such a large bad loan book, will, in any case, keep the provisioning requirement elevated, owing to ageing of bad loans.

In the December quarter, the bank had reported an outstanding stressed assets pool of ₹50,482 crore. In the March quarter, of the ₹29,000 crore of corporate slippages, ₹17,400 crore has been from the stressed pool. Despite the sharp slippages, the bank still has around ₹25,800 crore of accounts under its watch-list — this includes all corporate SMA2 accounts (where payments are overdue by 61-90 days) and stressed SMA1 accounts (overdue by 31-60 days).

This leaves open the possibility of substantial slippages for the bank in the coming quarters.

SBI’s bad loan provisioning has gone up from ₹17,700 crore in the December quarter to ₹24,000 crore in the March quarter. The bank has made use of the RBI’s dispensation on provisioning norms for NCLT accounts, in a few cases. Hence, there could be some additional provisioning kicking-in for these accounts in the June quarter. But what really matters is the success of recovery of these cases, as this will determine the possible write-backs and additional provisioning that the bank needs to make.

SBI — anticipating a longer than expected time-line for resolution of these accounts — implies a back-ended recovery and no let-up in earnings pressure until the end of FY19. In the December quarter, SBI had expected 60 per cent of the NCLT cases to be resolved in the first quarter of FY19. Now it expects 43 per cent of the NCLT cases (under the first list) to be resolved in the first quarter of FY19 and the balance in the second quarter. It expects NCLT cases under the second list to be resolved by end of FY19. SBI has around ₹77,600 crore exposure to NCLT cases.

Weak core performance

The elevated loan loss provisioning in the coming quarters is of particular concern because of SBI’s weak core performance. The bank’s net interest income in FY18 has been marginally lower than that reported in FY17. Advances have grown by a muted 4.8 per cent YoY in FY18. Deposits too have grown by a modest 4.2 per cent lower than the 7-odd per cent growth at the system level. Given SBI’s size and reach, its sluggish growth lends little comfort. It is obvious that the largest lender has lost market share to private players over the past year.

Published on May 22, 2018
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