SBI likely to report loss in Q4FY18 on rise in provisions, NPAs

In the December quarter, SBI had posted a surprise net loss of Rs 2,416 crore after its gross non-performing assets (NPAs) jumped to 10.35 percent of total loans, highest in over 15 years.

For the quarter under review, provisions towards likely losses in its bond portfolio due to rising government bond yields and further additions due to the Reserve Bank of India’s (RBI) revised bad loan framework may hit the lender’s bottomline.

Provisions towards bad loans during the quarter are estimated to rise by 26 percent to Rs 14,834 crore, up from Rs 11,740 crore in the corresponding quarter last year.

SBI's total stressed pool as on December end 2017 stood at Rs 50,482 crore.It remains to be seen if all of this may slip into NPAs.

Stressed assets include its watchlist of potential bad loans, the accounts under SDR, S4A and 5/25 restructuring schemes among others.

Asset quality

Caught by the heavy storm of NPA clean-up by the central bank and the insolvency accounts leading to higher provision requirement, reports suggest that SBI could see more stress in its loans for the last quarter of FY18.

A Motilal Oswal report, pegs its gross NPAs at 11.5 percent of total loans as on March end, as against 10.35 percent in the previous quarter and 9.1 percent in the year-ago quarter.

Net NPAs are also likely to worsen to 6.10 percent as on March end 2018 from 5.61 percent in December quarter and 5.19 percent in the March quarter in FY17.

Motilal Oswal’s projections show SBI is likely to report a net loss of Rs 1,651.8 crore for Q4FY18.

“Even relatively better-managed PSBs such as SBI and BoB are likely to see soft credit growth, but the elevated incremental stress is likely to be hemmed in by seasonally strong recoveries,” said a report by Sharekhan.

Gross NPAs, in absolute terms, may rise by Rs 39,200 crore to Rs 2.17 lakh crore from a year ago period, while net NPAs are set to rise by Rs 18,700 crore.

“We expect credit cost to remain elevated, led by continued stress additions and focus on shoring up provision coverage ratio (PCR),” said the Motilal Oswal report.

Credit costs (ratio of provisions set aside to the total loans) for the first nine months of FY18 stood at 3.18 percent, while in Q3 it was 3.64 percent.

Loan, deposits and interest income growth

Total loans or advances growth is likely to remain flat at Rs 18.93 lakh crore while deposits are likely to grow by a marginal four percent to Rs 26.88 lakh crore.

Net interest income (NII), the difference between interest earned on loans and paid on deposits, is likely to increase by 6.7 percent to Rs 19,286 crore as against Rs 18,070 crore a the fourth quarter in FY17, Reuters' poll estimated.

Non-interest income or other income is projected to remain nearly flat or edge lower to Rs 10,228 crore as compared to Rs 10,327 crore.

Full year

For the full year ending March 2018, SBI is expected to report a loss of Rs 405 crore versus a profit of Rs 1,048 crore in FY17.

Provisions for FY18 will substantially rise by 70 percent to Rs 61,146 crore from Rs 35,993 crore.

SBI caters to roughly one out of every three customers in India and accounts for almost 23 percent of total loans in the country.

On Monday, SBI's shares ended higher by 2.45 percent to Rs 245.10 apiece as compared to a 0.67 percent fall in BSE Sensex.

Key things to watch out:

1. Outlook on NPAs and Insolvency accounts and progress


2. Loan and deposit growth guidance


3. Updates on completion of one year since the mega SBI merger


4. SBI Chairman’s views on the ongoing NPA clean-up post the revised framework for the industry


5. Capital raising plans