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Last Updated : May 27, 2016 03:53 PM IST | Source: CNBC-TV18

SBI's asset quality woes may continue into H1FY17: Analyst

Gaurang Shah of Geojit BNP Paribas is positive on SBI, but hints at some more stress for the lender in the next two quarters.

India's largest lender, the State Bank of India, has come out with its consolidated and standalone results for FY16.

Net profit for the bank is at Rs 1,264 crore while gross non-performing assets (NPAs) rose 6.1 percent quarter-on-quarter, from Rs 72,000 crore to Rs 98,000 crore.

Analysts said asset quality weakened thanks to a rise in slippages from Rs 20,692 crore in Q3 FY16 to Rs 30,312 crore in Q4. 

In an interview with CNBC-TV18, Siddharth Purohit of Angel Broking said he was anticipating the gross NPAs to move up, thanks to the Reserve Bank of India's ongoing asset clean-up move.

Gaurang Shah of Geojit BNP Paribas is positive on SBI, but hinted at some spillover continuing into the next two quarters.

The bank has accounts worth Rs 31,000 crore under the watch-list.

"The recovery process and how the bank is able to gain the restructured assets back on to the balance sheet should be areas to watch out for in the watch-list by the management," said Shah.

Purohit expects the watch-list to be inclusive of the details about the slippages.

"I want to understand where slippages came from — regular books or restructured books, as this would give an idea [of future] provisioning," he added.

While most experts think that the worst is over for both, the bank and the markets with SBI's results, Bajrang Bafna of Sunidhi Securities & Finance said he expects high restructuring to continue in the near term, given its continuing asset quality troubles.

Below is the transcript of Siddharth Purohit, Bajrang Bafna and Gaurang Shah’s interview with Latha Venkatesh, Surabhi Upadhyay and Ekta Batra on CNBC-TV18.

Latha: We know that the gross non-performing loans (NPL) have risen by Rs 25,000 crore or they have risen by 140 basis points (bps) to 6.5 percent. The provision coverage ratio (PCR) is 60.69. I would assume those are the crucial numbers you want? What would you call this number? Good, bad, indifferent, in line, better than expected?

Purohit: Almost in line, I would say because the gross non-performing assets (NPA) was as expected to go up only, but if you see, at net level the gross NPA has gone up by more than Rs 25,000 crore.

The provisioning number Rs 13,000 crore looks little lower, what they have done. Probably they should have done higher provisioning to keep the PCR at the same level. So, possibly, provisioning number looks little lower. Possibly, they should have taken higher provisioning.

Other income number also looks on a little higher side. So, the bifurcation needs to be seen. The other income numbers are pretty higher than what I was basically expecting.

Ekta: Rs 30,312 crore on the slippage figure this time for SBI.

Purohit: Yes, Rs 30,000 crore is on a little higher side but going by the trend, it was evident that it would go up. However, earlier, I was expecting that possibly somewhere around Rs 25,000 crore of slippages could come.

Latha: So, would you say that there has been not much by way of recoveries and upgrades?

Purohit: Yes. In fact, in the last quarter also, the recovery and upgradations were pretty low. Going by the gross NPL number, if you see, it seems that recovery and upgradations could have been much higher.

Surabhi: The initial numbers are out of course we are waiting for more asset quality internals, but what kind of a watch list expectation are you working with, with SBI, given from what we have seen from some of the other larger lenders?

Shah: First of all a disclosure we are maintaining a positive coverage on State Bank of India and after the numbers the stock has not reacted and it is holding ground.

Latha: Since you also watch all the other stocks, is this a relief rally for the markets that okay now the big news of the day is out, we know what is SBI good, bad or indifferent we know it, so is this why the market is racing higher?

Shah: So my sense is that yes, large part of the poison is out and the concern was that that there should not be a number, which will send shivers down the spine or give somebody headache. So my sense is that now that this is out, the uncertainty is away and we should possibly have some stability and when I was talking to Surabhi my point was that it is not like the stock has corrected 5-10 percent on downside. It has surrendered certain higher levels, but it is holding on to the green zone. So my sense is that yes that this could be one of the worst set and possibly gradually you should see some improvement coming in.

One would also like to hear the commentary from the management as to how they want to strengthen balance sheet status going forward from here on.

Latha: What will you want to hear from the management in terms of the position?

Shah: Given that you have initiatives taken by the government and of course the management has provided for whatever has gone wrong up till now may be you might see some stress in the next quarter or two, but there should be visible amount of strength the number should not deteriorate at least that is what I would want to see.

Latha: What would you want to hear from the management? What is your watchlist worry number?

Bafna: As per my estimates and understanding SBI has done fairly better. Rs 30,000 crore number is much better considering how the cleaning has happened in Punjab National Bank (PNB) or for that matter maybe Bank of India (BoI). So, for that matter SBI has done reasonably well and that is why the stock is holding on.

Considering the size of Rs 14 lakh crore book and just Rs 1 lakh crore book as non-performing asset (NPA) I simply disagree that the poison is out. There is more poison about to come. I have already indicated that the pain in the system is roughly to the tune of Rs 12-13 lakh crore and we have seen that similar has panned out by most of the management's be it PNB, be it Bank of Baroda (BoB), BoI.

We have seen they have accepted that around 15-20 percent of the book is bad and either through restructuring or through NPAs or through SDR and 5/25 but for SBI the numbers are less still. So, there could be several reasons for it but I hope that the worst is not behind for SBI.

Latha: Almost 12 percent is recognised. Their total loan book is Rs 14 lakh crore. 60 percent is usually to corporates. So, of that 60 percent would mean Rs 8 lakh crore. Of Rs 8 lakh crore 1 lakh crore is recognised as bad loans.

Bafna: I am saying the total bank loans in the system is around -- if you talk about 2015 number it was Rs 60 lakh crore and running the jet score it is Rs 12 lakh crore. So, almost 20 percent of the overall book is bad and PNB assets 17.5 percent of the book including just GNP and restructured book is 17.5 percent.

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First Published on May 27, 2016 03:15 pm
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