State Bank of India on February 3 reported a 68 percent surge in net profit for the December quarter, beating Street expectations by a big margin. The net profit was boosted by a reduction in provisions and strong core income growth.
India’s largest lender reported a net profit of Rs 14,205 crore for the December quarter, up from Rs 8,431.9 crore in the corresponding period of the previous year. A poll of eight brokerages had estimated the net profit at Rs 13,360 crore for the quarter.
SBI’s net interest income, the core income it earns from its lending operations, rose 24 percent year-on-year to Rs 38,069 crore for the December quarter. Analysts polled by Moneycontrol had estimated the NII to be Rs 36,948 crore. The NII growth was lifted by a strong loan book expansion.
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The lender’s interest income rose to Rs 86,616 crore from Rs 69,678 crore in the same quarter of the previous year.
Provisions declined 17 percent to Rs 5,760 crore in the December quarter. The state-owned lender's provisions totalled Rs 6,974 crore in the same period last year. Loan loss provisioning, or provisions towards bad loans, dropped a big 49 percent to Rs 1,586 crore.
Growth engines fire
The bank’s loan book grew 17.60 percent and the expansion was led by retail loans that grew by 18 percent year-on-year. Within retail, housing loans showed a growth of 14 percent and had the largest share in retail loans. The fastest growing segments, though, were unsecured personal loans and gold loans. Chairman Dinesh Khara sounded optimistic over credit growth in the coming quarters but added that the pace may moderate a bit.
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SBI’s corporate loan book too saw a similar expansion of 18 percent. Within corporate loan book, lending to roads and ports in infrastructure, iron and steel sector and services grew the fastest during the quarter. “We expect growth will be somewhere between 14-16 percent for FY23,” said Khara in a press interaction post quarterly results.
Deposit growth was far slower than credit growth at 9.5 percent to Rs 42.13 crore for the December quarter. The share of low-cost current and savings account deposit declined marginally as depositors shifted towards term deposits which grew by 11.38 percent year-on-year. Khara said that deposit growth is comfortable enough to ensure the loan book growth isn’t hampered. “As of now we are comfortably placed to ensure that we are able to support balance sheet growth on loans,” he said.
When asked about whether interest rates on government schemes would impact deposit mobilisation, Khara said, “we are quite mindful of competition and we should be offering the deals to counter.”
Asset quality
SBI’s asset quality showed significant improvement in the December quarter and its gross bad loan ratio dropped to 3.14 percent from 4.50 percent a year ago. On a net basis, the share of bad loans in total loan book dropped to 0.77 percent from 1.34 percent a year ago.
The stress of the loan book is largely from agriculture that had a gross bad loan ratio of 12.03 percent. About 4 percent of corporate loans were non-performing and the ratio for retail loans was 3.24 percent.
However, fresh slippages increased to Rs 3,098 crore in the December quarter, from 2334 crore a year ago. Upgrades and recoveries too faltered, totalling Rs 1,643 crore, lower than 2,306 crore a year ago and far lower than Rs 5,207 crore in the previous quarter. The reduction in gross bad loans seem to have largely come from write-offs.
The bank’s special mention accounts that capture initial signs of stress has come down. SMA 1 and 2 accounts that capture repayments due for thirty days and more were down to Rs 4,747 crore from Rs 8,497 crore in the previous quarter.
