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Despite its core business improving significantly, State Bank of India's profits fell short of market estimates. Higher investment depreciation, low income from sale of investments, providing for improving the provision-coverage, incremental slippages and provisioning for standard assets have all taken a toll on the bank's profitability.
Investment depreciation provision alone was Rs 1,048 crore against a write-back of Rs 298 crore in the June 2010 quarter.
This, coupled with the continuing trend of a rise in NPAs, has reduced profits . The rise in non-performing assets was predominantly contributed by agriculture, SME (small and medium enterprises) and restructured accounts.
NIM improves
But, even as most of the public sector banks witnessed a contraction in net interest margins (NIM), SBI bucked the trend by improving its NIM during the June 2011 quarter.
SBI's NIM improved both on an year-on-year basis and sequentially from the March 2011 quarter, despite the rise in savings bank deposit rates . Domestic NIMs improved from 3.44 per cent in June 2010 to 3.89 per cent in June 2011.
The rise in margins was due to the lag effect in terms of lending rate hikes, whose benefits it reaped in the June quarter and marginal improvement in the credit-deposit ratio sequentially. Another important reason for the good margins was a lower proportion of deposits getting re-priced during the June quarter. Only 13.7 per cent of the deposits which were outstanding as of March 2011 were to mature in the June quarter. This ratio is low compared to the 27 per cent re-priced in the case of Bank of India and Bank of Baroda and 22 per cent for Canara Bank and Punjab National Bank.
Maintains CASA ratio
SBI continued to maintain its CASA ratio at around 48 per cent despite this ratio declining for most banks.
SBI hiked its base rate by one-percentage point in the June quarter and raised it subsequently by another 75 basis points, which would help improve the yields further . SBI went slow on deposit rate hikes, which may also put less pressure on the NIM.
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