SBI: Expect NPAs to improve; restructuring not red flag

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SBI: Expect NPAs to improve; restructuring not red flag

It's been an earnings heavy day and the country's largest bank State Bank of India exceeded expectations both on the top & bottomline with profits coming in 15% higher at Rs 3,270 crore.

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It's been an earnings heavy day and the country's largest bank State Bank of India exceeded expectations both on the top and bottomline with profits coming in 15% higher at Rs 3,270 crore.

But asset quality concerns cast a shadow on SBI's Q3 performance. Chairman Pratip Chaudhuri said that asset quality will remain a concern and there should be more NPAs without an exception because the loan book itself is growing.

"We have seen that the increase in the loan slippages have almost plateaued for example our net NPA ratio is going up by 0.20% per quarter so that is the stable part and this time a large value account has gone into NPA category, which has upset all our calculation," he said.

He does not think in this quarter, a similar large value account is likely to slip into NPA category and therefore expects an improvement in their NPA position.

On their restructured portfolio, there are Rs 2,000 crore restructured accounts in this quarter vis-à-vis say Rs 500 crore in the past two quarters. However, he doesn't think restructuring should be seen as a red flag because it means a company which earlier committed to repay the loan in six years, should do it in eight years.

"Past experience suggests that only about 20% of the restructured account falls back into the NPA category, the rest 80% responds to the stimulus given in the restructuring package and become a standard account," he said.

This quarter profit has also been helped because of the write back in the provisioning of Rs 870 crore. The other income however, has seen a decline and would have been Rs 3,200 crore. There is an Rs 1,100 crore loss which was incurred in their share portfolio. So, the share portfolio last quarter we had only taken the write-down.

"This time when we did the loss, the other income write-back has happened because the interest rates have moved slightly lower," he said, adding with the result their bond portfolio, which had undergone a diminution in value in the Q2 has returned some of the depreciation that they have.