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'Quite okay' with lowering stake in Yes Bank to 26% by March 2023, says SBI chairman

As bond yields soften, SBI will recover most of the mark-to-market losses made in Q1, Dinesh Kumar Khara said

August 07, 2022 / 09:15 AM IST
State Bank of India Chairman Dinesh Kumar Khara

State Bank of India Chairman Dinesh Kumar Khara

State Bank of India (SBI) chairman Dinesh Kumar Khara said on August 6 that the state-owned lender was okay with lowering stake in Yes Bank to 26 percent by the end of the financial year 2022-23 from 30 percent as on June 30.

The board, however, was yet to decide whether SBI would hold a 26 percent stake in Yes Bank in the next financial year, Khara said as the country’s biggest bank came out with its June quarter result.

“Till March 2023, we are required to hold 26 percent stake (in Yes Bank). If it all, our stake comes within 26 percent till March 2023, I am quite okay with that. Beyond that, we have not deliberated at the board level, so I am unable to comment anything relating to our further course of action,” Khara said in a post-earnings conference.

As on June end, SBI held a 30 percent stake in Yes Bank and ICICI Bank 3 percent. Axis Bank, IDFC First Bank and Bandhan Bank held between 1 and 2 percent stake each in the private sector lender.

Leading a consortium of lenders, SBI infused emergency capital amounting to Rs 10,000 crore in the distressed Yes Bank in 2020 when it approached bankruptcy. The embargo on SBI and other lenders to hold their shares in Yes Bank as part of a reconstruction scheme ends in 2023.

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SBI, however, could potentially continue to maintain its holding in the Mumbai-headquartered bank even after the embargo ends on account of a good return on investment, Yes Bank managing director and chief executive officer Prashant Kumar told Moneycontrol on August 3.

“If any investment is giving me a good return, I have seen, as a behaviour, people would like to continue. But again, these calls will be taken by individual entities,” Kumar said.

Kumar’s comments came after Yes Bank announced that it would raise $1.1 billion in equity capital from private equity investors Carlyle and Advent International.

Q1FY23 earnings

SBI’s Q1FY23 net profit came in at Rs 6,068.1 crore, down 7 percent year-on-year (YoY) and 33 percent sequentially on account of loss in the treasury book and higher operating expenses.

Its other income, which includes treasury income, stood at Rs 2,312.2 crore, sharply lower from Rs 11,802.7 crore a year ago and Rs 11,880.2 crore in the previous quarter.

Net profit and operating profit were impacted by mark-to-market losses (MTM), Khara said, adding core revenue streams, however, remained intact and showed decent on-year growth.

“As we saw a hit on account of mark-to-market losses amounting to Rs 6,549 crore on our investment book, it also had an adverse impact on the bank’s RoA (return on asset) and RoE (Return on equity), which is down by 9 bps and 203 bps, respectively,” Khara said.

“As rates soften (bond yields), we will recover most of these MTM losses,” he added.

SBI has the largest portfolio of fixed income securities of which government securities form a big chunk. The rise in bond yields during the June quarter saw the lender incur huge losses in its trading book. When bond yields rise, their prices come down.

Banks are mandated to mark their investments to prevailing market prices and charge the gains or losses to the profit and loss account, also known as mark-to-market gains or losses.

Also read: SBI releases Q1FY23 results, here are top five takeaways

In terms of assets, SBI’s total loans grew 14.9 percent YoY and 2.9 percent sequentially to Rs 29 lakh crore as on June 30, in line with the industry average.

Of the total advances, domestic corporate loans grew 10.6 percent to Rs 8.74 lakh crore as on June end. Retail personal loans grew 18.6 percent YoY to Rs 10.34 lakh crore during the same period and home loans rose 13.8 percent on year at Rs 5.75 lakh crore.

“We are quite comfortable as far as supporting growth in credit is concerned,” Khara says.

The chairman said that the bank was witnessing sharp under-utilisation of capital from the sanctioned loan amount. In case of working capital loans, under-utilisation level was as high as 49 percent, he added.

Broadly, Khara said, SBI had about Rs 5 lakh crore of unutilised pending sanctioned loans and another Rs 1.3 lakh crore of corporate loans were in the pipeline.

“That very clearly indicates the likely growth which we are going to witness on the corporate side,” Khara said.

With demand flowing in from sectors including power, road, telecom, petrochemical, aviation and non-banking finance companies, SBI would likely continue growing its advances at 15 percent in the current fiscal, Khara said.

“Even the capacity utilisation in the economy is at 75 percent, and we have got a situation where I think more corporates will probably be looking at us for availing their credit facility as compared to options that were available in the past, in terms of raising money from securities market…,” Khara said.

Asset quality

Even as SBI’s headline gross non-performing asset ratio improved 6 bps QoQ to 3.91 percent as of June 30, its fresh slippages were sharply higher QoQ.

Fresh slippages rose to Rs 9,740 crore, up from Rs 2,845 crore a quarter ago. Fresh slippages, however, were lower than Rs 15,666 crore reported during Q1FY22.

“Slippages we should rather see much better situation…we are not having any major concerns on slippages and asset quality we don’t have any challenge,” Khara said in the press conference.

“…for all practical purposes, we compare (fresh slippages) on YoY basis,” Khara said. He added that SBI was trying to trim net NPA as well as credit cost as much as possible.

“It is a constant endeavour (to improve asset quality),” the chairman said.

Further, SBI’s Rs 28,785 crore restructured book was also performing better than expected. “If you look at NPAs itself in the restructured book, it would be somewhere around 1.9 percent, so when we compare it to broader book, it is much better,” Khara said.
Piyush Shukla
first published: Aug 6, 2022 06:54 pm
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