SBI’s bad loans up by ₹11,932 crore in FY19

The Reserve Bank of India’s final Risk Assessment Report (RAR) of the SBI has said that the bank’s gross and net NPAs should be higher by ₹11,932 crore each at ₹1,84,682 crore and ₹77,827 crore, respectively, as at March-end 2019.

This will have the effect of pushing State Bank of India into reporting a net loss of ₹6,968 crore in FY2019. India’s largest bank had reported a net profit of ₹862 crore in the last fiscal year, when it declared its financial results on May 10, 2019.

The divergence in asset classification usually arises when there is a difference in the NPAs, as reported by a bank, and as assessed by the regulator. Similar is the case with the provisions made towards NPAs. Such divergence either lower the bank’s net profit, push them into a loss or widen the loss.

For example, after the RBI’s RAR, Bank of India’s net loss widened to ₹6,993 crore in FY2019 against the ₹5,547 crore initially reported. YES Bank’s net profit for FY2019 came down to ₹1,084 crore against the ₹1,720 crore reported, post the RAR.

SBI, in its comments said, that after subsequent slippage/upgradation during FY2020, the remaining impact on the gross NPAs during the third quarter of FY2020 (October-December) is ₹3,143 crore. With regard to net NPAs, the bank said that after subsequent provisions made/upgradation of NPAs during FY2020, the remaining impact on the net NPAs during the third quarter of FY2020 (October-December) is ₹687 crore.

The RAR assessed that SBI’s provisioning for NPAs as on March-end 2019 should be higher by ₹12,036 crore at ₹1,18,892 crore. According to the bank, after the subsequent provisions for NPAs during the current FY2020, the remaining impact on provisioning during Q3FY2020 (October-December) is ₹4,654 crore.

The RAR process

After conclusion of the RBI’s onsite engagement, the RAR is subject to independent quality assurance checks. After these checks, the report is communicated to the banks as a Preliminary Risk Assessment Report (PRAR). This report is discussed with banks’ top management for seeking its responses and comments.

After the exit meeting and incorporation of banks’ comments, the RAR is issued with proposed risk mitigation plan (RMP). After this, a high level supervisory discussion takes place between the RBI and the banks’ top management where the major areas of concerns observed in the RAR are discussed and the proposed RMP is finalised.