A State Bank of India ATM in Mumbai (File photo)
State Bank of India reported a net profit of Rs 6,068 crore for the June quarter, missing the Street estimates by a wide margin as treasury losses eroded profitability.
The average estimates of ten brokerages surveyed by Moneycontrol showed that net profit was expected to be at Rs 7,496 crore – a growth of 16 percent year-on-year. In contrast, India’s largest lender reported a drop of 6.7 percent in its profit after tax for the June quarter.
SBI has the largest portfolio of fixed income securities of which government securities form a big chunk. The sharp rise in bond yields during the April-June quarter meant that the lender had to incur huge losses in its trading book. When bond yields rise, their prices come down. Banks are mandated to mark their investments to prevailing market prices and charge the gains or losses to the profit and loss account, also known as mark-to-market gains or losses.
The mark-to-market hit dragged SBI’s non-interest income down massively to a mere Rs 2,312 crore for the reported quarter compared with Rs 11,802 crore a year ago. This resulted in a fall of 32.8 percent in operating profit to Rs 12753 crore for the quarter.
Beyond the treasury hit, SBI’s core performance was resilient. Net interest income grew by a healthy 12.87 percent to Rs 31,196 crore for the June quarter on the back of a robust 14.9 percent loan growth and stable margins. Further, provisions towards bad loans declined as asset quality improved for the bank. Provisions declined 15 percent to Rs 4268 crore for the three months ended June, aiding net profit growth.
Balance sheet growth
SBI’s loan book showed a broad based growth of 14.9 percent as both corporate and retail loan book grew at a healthy pace. Most analysts had expected loan growth to be 14-15 percent for the quarter. Corporate loans grew by 10.57 percent year-on-year while the retail book grew faster by 18.58 percent powered by a strong growth in home loans. Net interest margin came in at 3.23 percent, an improvement of 8 basis points. One basis point is one-hundredth of a percentage point. That said, NIM was down sequentially.
As SBI’s loans earned it more interest due to lending rate hikes that the bank took during the quarter, growth in its low-cost deposits helped keep cost of funds low. Current and savings account deposits grew by 6.5 percent and formed 45.33 percent of the total deposit book. Deposits as a whole grew by 8.73 percent for the quarter.
SBI’s gross bad loan ratios improved from a year ago and its already strong provision cushion strengthened further. The total pile of gross bad loans declined 15 percent from a year ago to Rs 1.13 lakh crore as of June end. Gross bad loans formed 3.91 percent of the loan book as against 5.32 percent a year ago. On a net basis, non-performing loans formed just 1 percent of the total loan book. Slippages too remained contained during the quarter with the slippage ratio at 1.38 percent, down from 2.47 percent a year ago. That said, asset quality metrics weakened on a sequential basis. Slippage ratio was up 95 basis points from the previous quarter.