In what seems to be a relief from incurring heavy slippages quarter after quarter, the State Bank of India (SBI) expects lesser loans will turn sour going forward.
The country’s largest lender aims to contain its slippage ratio within 2 percent of its loan book by end of the current financial year, Chairman Rajnish Kumar said. The bank’s loan book stood at Rs 22.48 lakh crore on September 30, 2019.
“Overall, the baseline is Rs 32,000-34,000 crore for the bank, which is 1.6 percent of our current loan book…Ultimately, we have reached a situation where our gross slippages in not-so-good circumstances are not likely to exceed 2 percent,” Kumar said.
He added that the bank has started providing against slippages in advance, in alignment with the estimated costs. “Today, the provision which the bank is holding is more than the estimated loss given default,” Kumar said.
SBI’s slippages halved in the September-ended quarter to Rs Rs 8,805 crore, from Rs 16,212 crore in the previous quarter and Rs 10,725 crore in the same quarter last year. The bank’s slippage ratio eased to 2.18 percent in the second quarter, from 2.83 percent in the previous quarter.
To be sure, the bank used its entire proceeds of around Rs 3,500 crore gained from the sale of 4.5 percent stake in its life insurance subsidiary to make upfront provisions against two bulky stressed accounts—Rs 2,600 crore for a power company and rest for a housing finance company.
As a result, its provision coverage ratio increased to 81.23 percent in the July-September period, as compared to 70.74 percent in the same quarter last year.
SBI reported a 3-fold jump to Rs 3,012 crore in the second quarter net profits on the back of its divestment in life insurance arm. However, the lender decided to defer shifting to a new tax regime until the March quarter.
The bank has maintained its credit growth target of 12 percent for the current financial year. Its domestic loan book grew at a pace of 8.43 percent in the July-September period, largely driven by a growth of 18.9 percent in retail advances.
SBI’s domestic net interest margins also improved to 3.22 percent in the second quarter, from 2.80 percent in the same period last year.
The bank is adequately capitalized as of now and may go ahead with the plan of listing its credit card venture. It has, however, shelved the plan to list its general insurance arm this financial year, for the want of better valuations.