Profit on sale of investments bails out SBI

Despite advances growing at 15.5% from a year ago, the bank saw a decrease in net interest income 

  

          

eported a 4.1% increase in net profit to Rs.3,396 crore, below the Street consensus. But even that wouldn’t have been possible if it hadn’t made money from the sale of investments, taking advantage of lower bond prices and rising equity markets.

SBI’s operating profit grew a tepid 7.3% from a year ago as it made a profit of Rs.418 crore on sale of investments, compared with a loss of Rs.1,080 crore a year ago. Thus, it was able to show a Rs.1,575 crore increase in other income, which was about three times the rise in operating profit. This was in the face of a 3% decline in fee income.

Despite advances growing at 16% from a year ago, the bank saw a decrease in net interest income. For one, SBI had to transfer pension money worth Rs.20,000 crore into a trustee account and lost out on interest income.
The net interest margin slipped to 3.72% in the December quarter, compared with 3.77% in the September quarter and 4.13% a year ago. That was not wholly unexpected. SBI’s average cost of deposits increased 41 basis points from a year ago, while the yield on advances declined 18 basis points as it had cut lending rates in the previous quarter. A basis point is one-hundredth of a percentage point.
Asset quality problems also continued to bite. Overall, the bank added Rs.4,255 crore to bad loans in the December quarter, compared with Rs.2,016 crore in the preceding three months. As a result, gross non-performing assets (NPAs) as a ratio of total loans jumped to 5.3% at the end of December, compared with 5.15% three months earlier.
Fresh restructuring also continued, although SBI’s stock of restructured assets came down by Rs.12,259 crore. That was because there are new Reserve Bank of India (RBI) rules that allow upgrade of restructured assets and SBI has migrated Rs.15,097 crore into standard assets.
Secondly, total stressed assets (net NPAs plus restructured standard assets) still make up for 4.88% of gross advances. This number, too, has been increasing over the past four quarters. With RBI looking at new rules that may nearly double the provisioning on new restructured assets to 5%, all banks may push to recast more loans in the March quarter. Thus, the worst might not be over in terms of asset quality problems for SBI even if the bank management guidance was optimistic as usual.

TOUHID HUSSAIN
PGDM 2nd SEM