It’s true that the 134 percent surge in State Bank of India
’s after-tax profit looks eye-wateringly good. It’s equally true that the fat percentage number owes quite a bit to the weak year-earlier period, which was hit by RBI’s Asset Quality Review.
Nevertheless, on most of the parameters, the figures didn’t disappoint. The key question that begs our attention: Is the sequential decline in slippage for SBI and many other banks an early sign of ‘turnaround’ or are we still in the middle of the tunnel?
Key business parameters looked better for SBI sequentially – net interest Income (the difference between interest income and expenses) grew by 7.7 percent, an improvement over the 1.3 percent that was reported in the previous quarter.
In line with many of its peers, the bank reported a 221 percent surge in trading gains, thanks to the nearly 50 basis points decline in G-Sec yields over the quarter.
The cost/income ratio moderated to 48.6 percent (50.9 percent in the previous quarter), despite retirement contribution for employees going up by 38 percent, owing partially to the trading windfall.
Provision appears to be stabilising with loan loss provision declining by 5 percent. Profitability would have got a boost had it not witnessed a steep surge in standard assets provision in the quarter (Rs 1364 crore against Rs 175 crore in the year-ago quarter). The bank hadn’t compromised on provision coverage either, which is comforting.
Silencing many of the naysayers who expressed concerns about the lender's ability to protect margins in the wake of demonetisation-led deposits surge, the net interest margin at 3.03 percent witnessed sequential decline of 2 basis points.
However, the 22 percent year-on-year growth in deposits was way ahead of its peers. Advances continue to be subdued at 4 percent - being the bellwether, reflecting the overall weakness in the macro.
Bankers have turned exceptionally cautious on incremental lending and SBI is no exception. The bank has disclosed that on its incremental lending book, 79 percent of exposure is to borrowers rated ‘A’ and above.
A quick comparison with its peers suggests that the bank has done reasonably well in a challenging environment and could be one of the early beneficiaries of an upturn. So while the Street might endlessly take fancy to lenders quoting at deep discount, the bellwether quoting at a reasonable valuation of at 1.8X current year adjusted book, looks as if it’s protecting its turf well.