On July 31, during the press conference announcing the June quarter result of State Bank of India (SBI), Chairman Rajnish Kumar made an interesting analogy, comparing the bank’s business position to a COVID-19 infected person.
“It is safe to presume that as on June 30, SBI is declared as asymptomatic and has built good immunity," Kumar said referring to bank’s preparedness to absorb the losses arising from the impact of the pandemic. “But that is not a guarantee on what will happen in future,” he added.
Kumar probably meant the bank has made sufficient precautions to cover COVID-related losses. Throughout the press conference, his body language was that of a confident man. But being asymptomatic isn’t necessarily a good thing. You can still be an infected person and can infect others too, just that the symptoms do not show up for a while.COVID cautionAs on June 30, SBI has made a total provision of Rs 3,000 crore to cover potential COVID losses. There are no negative surprises on the asset quality front so far.
But one can’t be too sure about the future. Will an 'asymptomatic' SBI throw negative surprises a few quarters later?
One will have to wait and watch to see how the moratorium loan book is performing post August 31. According to the SBI chairman, 9.5 percent of the book is now under moratorium and over 90 percent of customers have paid two or more instalments since March.
From September onwards, Kumar hopes that corporate accounts will start repaying normally. The bank has set aside as COVID provisions on Rs 1,041 crore of home and home-related loans and less than Rs 400 crore each in personal and SME loans.
Kumar is no big fan of a moratorium extension beyond August. “Most bankers, including myself, believe there is no need for moratorium beyond August 31,” he said.
That’s what most bankers, including Deepak Parekh and Uday Kotak, believe. No banker likes the idea of a moratorium extension. Most borrowers love it. In fact, banking industry has made a pitch to the regulator and the government to allow a one-time restructuring of loans instead of a moratorium.
In a tepid quarter, SBI has managed to draw deposits. Total deposits grew 5.48 percent over Q1 . The loan book has shrunk by 1.54 percent since March for logical reasons. In a COVID-hit economy, business activities have come to a standstill since March and most banks have seen a decline in their corporate loan growth. In SBI’s case too, lack of demand in corporate loans has dragged overall growth in advances.
Asset quality has improved. Gross non-performing asset (NPA) ratio at 5.44 percent is lower than 6.15 percent in the preceding quarter. But the continuation of moratorium till August makes current NPA numbers somewhat irrelevant.
The Reserve Bank (RBI) sees a major spike in bank NPA levels over the next one year, predicting a worst case scenario of 14.7 percent of gross NPAs for the banking industry by March 2021.Despite Kumar’s optimism, the industry is in a cautious mode with respect to the COVID-19 impact on asset quality. SBI is in a relatively better position compared with its peers. Analysts admit that considering the industry situation, SBI has had a decent quarter. But COVID can be an unpredictable villain in the story.