Will SBI turn around after lower-than-expected Q1 earnings?

Moneycontrol Bureau

India's largest lender the State Bank of India shares on Monday hit 52-week low after its first quarter (April-June) standalone net profit dropped 14 percent year-on-year to Rs 3,241 crore. Net interest income (NII) or the difference between interests earned and paid out, inched up 3.5 percent to Rs 11,512 crore. Also read: Bad loans to shackle SBI FY14 net, hurt smaller rivals On NIM… The domestic net interest margin (NIM) rose 3.44 percent compared with 3.66 percent recorded in the previous quarter. This was the fifth consecutive quarter wherein the lender reported fall in NIM. "Our NIM will be in the range of 3.50-3.60 percent for the full year (FY14). The incremental NPAs added since one year did not earn any interest. However, the situation is changing. We have seen 10 percent acceleration in July NIM compared with June figure," said SBI Chairman Pratip Chaudhuri replying to a moneycontrol.com query. Bad loans… SBI's gross non-performing assets (NPAs) increased 29 percent year-on-year to Rs 60,891 crore while net NPAs jumped nearly 48 percent y-o-y to Rs 29,990 crore. It reported fresh slippages of Rs 13,000 crore as against Rs 5,000 crore estimated. "Bad loans mostly came from agricultural sector and SMEs. I am surprised by the rise in NPAs from agricultural sector. On SME side, it was our inability to cope up with some large value accounts. We expect around Rs 2,500 crore agri loans (out of slippages) to come back (in the coming quarters). However, it is not going to be usual. It was not due to large run-rate growth but economic downturn," Chaudhuri said. However, the mid corporate segment relatively performed well. During the quarter, it recorded fresh slippages of Rs 2,800 crore as against Rs 3,500 crore in the corresponding quarter of the previous year. According to Arundhati Bhattacharya, the new appointed MD and CFO, the bank suffered on account of higher slippages due to operational issues on retail side. Group bank merger Markets continue to bet on SBI merger with its group banks. While the bank chairman will retire in September, he indicated to merge at least one bank before that. "We are looking at a (SBI group) bank with more assets but not similar deposits. We have enough cash to merge," he said briefly. On interest rates So far SBI, according to Chaudhuri, has not yet seen any significant rise in the cost of funds. The bank continues to rely on fixed deposits and savings deposits for funds. Those are cheap source of funds. "Banks which borrow short but lend long term are at a disadvantageous position. Our cost has not gone up substantially,” he said underscoring the bank's low cost of borrowings. Corporate loans and revival The continuous rise in bad loans compelled the lender to focus on low-yielding assets like home loans and top rated corporates. "We are sitting on Rs 60,000-70,000 crore cash. We can go aggressively for re-financing (of loans already maturing)," Chaudhuri said. saikat.das@network18online.com