SBI result a mixed bag; fall in NIM a worry: IIFL

State Bank of India’s fourth quarter earnings was a mixed bag; net interest income was lower than market expectation, but improvement in asset quality was encouraging, Rajiv Mehta of IIFL noted.

He, however, raised concerns over pressure on net interest margins. "So, it is a mixed bag wherein the margin performance has been weak whereas the asset quality performance has been strong," Mehta said. He expected the bank to report a NIM of 3.5 percnt for fourth quarter instead of 3.34 percent. The bank's NIM slipped by 10-15 bps sequentially. India's largest public sector bank reported nearly 19 percent year-on-year drop in its fourth quarter (January - March, FY13) net profit at Rs 3,300 crore. Higher provisions against non-performing assets (NPAs) and marginal growth in other income dented the bank's profit margin.
Net interest income or the difference between interest earned and paid out, slipped more than 5 percent Y-o-Y to Rs 11,080 crore. Below is the verbatim transcript of the interview Q: Your take on State Bank of India’s numbers?
A: The number seems to be mixed bag at this point of time because the net interest income (NII) performance has been lower than expectations. We were expecting about 116 billion in terms of NII. On margin front the weakness is continued and the margins could have slipped by 10-15 bps on sequential basis. At the same time, the asset quality performance has been heartening because the gross non-performing asset (NPA) levels have come off on sequential basis by material extent and the overall profitability seems to have been depressed by good level of provisioning that the bank has done. If I got it correctly the fresh slippage number was around 60 billion, which is significantly lower than what the street was expecting and what we were expecting at about 80 billion. So, it is a mixed bag wherein the margin performance has been weak whereas the asset quality performance has been strong. Q: The restructured figure that we have got at this point is 8,669 crore. What are you making of that figure?
A: That is a huge number and of course the market will not take it lightly. That is a big restructuring number for even a bank of a size of SBI. So, that is a negative in the number as well. Q How much was your estimate for the wage revision figure?
A: We did not estimate separately impact of this onetime provisioning, ideally it should be in the operating expense number and rather than being in the NPA provisioning line. I do not have the P&L in front of me so it will be difficult for me to comment on that. Q: Slippages has come in around 5,868 crore and that is lower on quarter-on-quarter (QoQ) basis. If you look at the asset quality, they have delivered in terms of what they were guiding for in terms of restructured book as well as for the slippages this quarter because most of the analysts were working with around 4,000 crore-5,000 crore on slippages and more than 8,000 crore in terms of restructured. What do you think is the key disappointment for SBI this quarter? Is it because of the NII shrinking as well?
A: We always thought that SBI is always perceived to be a better bank than other public sector banks (PSU) because of its operational resilience and the margin resilience because even the domestic NIMs of SBI is the highest, just above Punjab National Bank (PNB). So, we use to always take comfort from the fact that SBI is one of the banks wherein the margin cushion to take in higher provisioning is one of the best as far as PSU banks are concerned. So, even that line is getting slightly weaker then that is a cause of concern. So, it will not be taken positively by the market. Q: What was your expectation of the NIMs this quarter in terms of what SBI delivered?
A: Our expectation was 3.2 percent NIMs for the blended bank for the blended book and for domestic book we were expecting 3.5 percent for the quarter.