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The performance of leading banks in the December quarter followed a similar narrative. While recovery from a large account under the IBC has bumped up profits, rise in slippages from certain sector-specific events have not moved the needle much on the overall asset quality front.
The story of SBI, the country’s largest bank, has been no different. While the one-time large recovery (from Essar Steel) has boosted net interest income, resulting in write-back of provisions, a sharp rise in slippages to ₹16,525 crore in the December quarter (including a large HFC account of about ₹7,000 crore) has led to increase in provisions.
The RBI’s risk assessment report that revealed divergence to the tune of ₹11,932 crore with respect to FY19 has also been accounted for in the December quarter. SBI also moved to the new corporate tax rate regime, resulting in a one-time hit of ₹1,333 crore (owing to deferred tax asset adjustment).
While the results have been more or less in line with expectations, offering comfort to investors, given the lumpy trend in slippages and core performance over the past year, there are trends that need to be watched in the coming quarters.
A mixed bag
For SBI, while slippages had moderated in FY19 — from about ₹10,000-crore quarterly slippages in the first half to ₹4,000-7,000 crore in the second half — they had shot up again to ₹16,212 crore in the June quarter.
Slippages had declined in the previous September quarter to ₹8,805 crore, but shot up again to ₹16,525 crore, owing to a large HFC account.
But even excluding this one-time stress, slippages are at elevated levels. The increase in outstanding NPAs is at ₹3,573 crore. While the overall bad loan book has declined marginally, at ₹1.59-lakh crore, it is still a large book that could keep provisions high.
SBI has about ₹1.23-lakh crore exposure to all cases admitted under the NCLT. Unlocking of capital, by way of write-backs, will be critical to ramp up credit growth.
SBI has ₹37,790-crore exposure to the telecom sector as of December 2019. The extent of the pain for banks after the Supreme Court’s verdict on adjusted gross revenue is still unclear. Also, the significant rise in agri bad loans for SBI over the past two years, may need a watch. The bank’s NPAs in agri loans is at 13.8 per cent (as of December 2019).
Muted credit growth
On the core business front, while the net interest income rose by 22 per cent in the December quarter, it was aided by the one-time large recovery.
In fact, SBI’s domestic loan growth of 5 per cent in the December quarter (down from 8 per cent in the September quarter) lags that of leading private banks. HDFC Bank’s domestic loans grew by 20 per cent in the latest December quarter. While SBI’s retail loan growth was a healthy 17 per cent, decline in SME and corporate loans has dragged the overall credit growth.
Above all, for SBI’s earnings to see a significant jump, provisions will have to moderate substantially. Unless there are consistent large recoveries (rather than write-offs), earnings may not see a sustainable revival.
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