SBI asset quality. SBI’s asset quality improves, but Covid may intensify pain in agri, corporate and SME portfolios

The stock of SBI rallied more than 4 per cent on Friday, following stellar numbers posted by the PSU bank in the March 2021 quarter. The bank’s net profit for the quarter jumped 80 per cent (yoy), led largely by growth in other income and lower credit costs.

Investors also loaded on the stock following the bettering trends in the bank’s asset quality.

Lower than proforma

For the first nine months of FY21, the six-month moratorium on loan repayments, and the ensuing asset classification standstill kept bad loans at bay. This resulted in a chunk of slippages being recognised by the bank in the March quarter (₹21,934 crore) – more than double the slippages recognised in the corresponding quarter last year. However, this still constitutes just about 0.9 per cent of the bank’s gross advances. Besides, the bank’s prudent provisioning in the last quarters helped keep the credit costs in check — it ended FY21 with a credit cost of just 1.12 per cent.

SBI’s gross non-performing assets (GNPA) were at 4.98 per cent. The GNPAs were lower in the quarter compared to both the year ago period (6.15 per cent) and the proforma numbers reported in December 2020 quarter (5.44 per cent).

The slippages during the quarter largely stemmed from the corporate (constituting 30 per cent of the total slippages) and SME (22 per cent) loans. The agri loan portfolio, which has been under stress for the last two years, contributed to another 33 per cent of the slippages.

Further, requests for restructuring amounted to ₹17,852 crore (0.7 per cent of the gross advances). About 77 per cent of the restructuring requests too flowed from the corporate and SME book combined.

Worst may not be over

Despite bulky slippages been recognised in the March quarter, the worst is not yet over for SBI, on the asset quality front. This is because just when the economy was recovering from the after effects of the lockdown in the last year, the pandemic’s second wave came as a bummer. With looming uncertainty, the management refused to give out any guidance at the moment. However, it indicated that the collection efficiencies in April 2021 (calculated on a 7 to 89 days past due) were 20 basis points lower than in March 2021. This may worsen in the coming months, following the on-going partial lockdowns in many parts of the country.

Besides, the bank has also increased its exposure in the risky corporate and SME segments. While much of the growth in gross advances (up 4.8 per cent to ₹25.4 lakh crore) came from the retail personal advances, the bank has also been growing its exposure towards corporates and SMEs, albeit at a moderate pace.

Over the last couple of years, the bank has been redirecting its focus on retail personal loans — with 16.5 per cent (yoy) growth during the quarter, retail personal loans now constitute about 39.9 per cent of the gross advances of the bank, compared to 36 per cent in FY20.

While the share of corporate loans has come down to 37.5 per cent (from 40.9 per cent in the year ago period), the bank’s corporate exposure has grown by 6.5 per cent yoy, including the corporate bonds and commercial papers worth ₹51,811 crore issued during the quarter. Besides, much of the loan growth in corporate segment came from the roads and ports (up 47.6 per cent yoy) and aviation (up 76.6 per cent yoy) industries. However, this might not be very alarming since most of these loans were towards Government agencies and PSUs in this space. Besides, these industries still constitute only about 3.8 and 0.5 per cent of the domestic advances of the bank.

About 25 per cent of the bank’s corporate loan book comprises of companies rated BBB or below — up from 23 per cent in March 2020.

The SME and agri loan portfolios also saw a moderate growth of 4.24 and 3.92 per cent, respectively, in the March quarter.

Any significant rise in slippages or restructuring from current levels can lead to rise in provisioning eating into earnings of the bank. However, existing provision cover (PCR of 77 per cent plus special Covid related provisions) and healthy capital ratio (13.74 per cent) can provide a buffer to absorb losses going ahead.

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