SBI Q4 profit up 23 percent, bad loans fall

Non-performing assets fall by close to 8 percent, although analysts say they remain high

Salil Panchal
Published: May 22, 2015 04:39:43 PM IST
Updated: May 22, 2015 05:15:34 PM IST

Life is not a template and neither is mine. Like several who have worked as journalists, I am a generalist in my over two decade experience across print, global news wires and dotcom firms. But there has been one underlying theme in each phase; life gave me the chance to observe and tell a story -- from early days tracking a securities scam to terror attacks and some of India's most significant court trials. Besides writing, I have jumped fences to become an entrepreneur, as an investment advisor -- and also taught the finer aspects of business journalism to young minds. At Forbes India, I also keep an eye on some of its proprietary specials like the Rich list, GenNext and Celebrity lists. An alumnus of Xavier Institute of Communications and H.R College of Commerce and Economics in Mumbai, I have worked for organisations such as Agence France-Presse, Business Standard, The Financial Express and The Times of India prior to this.

SBI Q4 profit up 23 percent, bad loans fall
Image: Shailesh Andrade/Reuters
SBI chairman Arundhati Bhattacharya

State Bank of India (SBI), the country’s largest lender, reported a better-than-expected 23 percent jump in net profit for the three months ended March. Its improved asset quality pushed up share prices briefly.
 
SBI reported a net profit of Rs 3,742 crore in the January to March quarter, up 23.06 percent over the previous year’s Rs 3,041 crore for the same period. Analysts had widely expected SBI to post a profit of Rs 3,720 crore for the quarter.
 
Importantly, the bank also showed a decline of close to 8 percent in gross non-performing assets (NPA) to Rs 56,725 crore in the financial year ended March 2015, from Rs 61,605 crore for the year ended March 2014. The bank’s gross NPA ratio declined by 70 basis points year-to-year and is at 4.25 percent while the net NPA ratio improved from 2.57 to 2.12 percent.
 
“All the key earnings numbers have been positive,” said Santosh Singh, banking analyst at Societe Generale. “The SBI management has been focusing on recoveries,” said Vaibhav Agrawal, banking analyst with Angel Broking, adding that recent quarters showed a steady improvement in asset quality and claims for the bank. “SBI’s processes are stronger than those of other public sector banks.” He, however, said that though bad loans have been falling, in absolute terms “they are still high”, and recoveries needed to improve a lot more.

After announcement of its quarterly earnings, SBI’s stock price rose to a day’s high of Rs 305, up 5.4 percent over its previous close at the Bombay Stock Exchange. It, however, slipped to Rs 282.45 in late afternoon trade, down 2.36 percent, on profit taking.

SBI chairman Arundhati Bhattacharya has been aggressively focusing on steps to reduce bad loan levels, boost profitability and use technology platforms to raise income and expand its reach. This week, the bank signed two important deals: One with Amazon, to facilitate payment and commerce solutions for its customers and small businesses; and the other with payment gateway PayPal, to facilitate cross-border transactions.

While financials for the bank are on the mend, analysts said it was critical that growth levels—through the loan book—improved for SBI. For several quarters, Indian banks have been weighed down by worries of rising bad loans and sluggish economic growth. SBI reported a 7.25 percent rise in total loans for the year, against the sector's loan growth of 12.6 percent, analysts said. Bhattacharya has said earlier that she expects credit growth for the bank to accelerate from the low levels of just under 10 percent to over 15 percent in the new financial year. 

While the Reserve Bank of India is expected to cut interest rates at the next policy meeting on June 2, the progress of this year’s monsoon, and pick up in rural demand and spending, will determine future trends in monetary policy.

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  • Danendra Jain

    State Bank of India has today announced annual financial report and announced reduction in Non Performing Assets and rise in net profit. I do not trust the correctness and genuineness of NPA data of the bank. Without manipulation and without concealment of bad debts, NPA ratio cannot come down. Government will have to inquire whether SBI has reduced NPA ratio by way of writing off of bad loans and by selling Bad accounts to ARC and treating the imaginary proceeds as Standard asset. Is there real recovery of money from defaulters equivalent to reduction in gross NPA shown by SBI in balance sheet? Government will have to verify critical accounts with exposure of rupees one crore and above to establish the correctness of financial result. Otherwise it will be equivalent to a fraudulent game played by bankers to conceal bad debts and spending good money to repay bad loans. If Government is able to peep into books of accounts of largest bank like SBI , the reality of all other public banks will be exposed and bitter truth of hidden bad debts will precipitate . And when truth is known, real action to recover the dues from defaulters may be undertaken by banks as well as by the government. If CBI is permitted to carry out investigation of each account of SBI , I am fully confident that NPA ratio will at least double than what have ben announced by SBI.NPA ratio may jump to four or five times also. It is simply false restructuring and selling of bad debts which has resulted in reduction of gross and net NPA of SBI. All banks manipulate the data of high value loans to inflate profit and to reduce NPA simply to please Ministry of Finance and RBI. Government of India is also least interested to expose the real volume of bad debts and neither interested to recover the money from defaulters. Banking scam is bigger than all scams which exposed in the past. All Bad debts are creation of UPA government and wrong policies of the then rulers. It is pity that even media men are incompetent to reveal the truth . Fact is that all public sector banks have concealed huge volume of bad assets and real volume of NPA is much more than what thy have announced in annual audited financials. Volume of NPA will continue to rise and a day will come it will explode . Ultimate loss will be borne by tax payers, bank staff and bank customers. There is continuous erosion in bank\'s capital and each bank is in need of infusion of capital from government. RBI has today told that share of LIC in Bank\'s capital is rising year after year and there is threat to LIC also in near future. But the question is who will stop such continuous fall in profit , erosion in capital and rise in bad debts. Are banks and legal machinery of the country equipped well to recover the money from bank loan defaulters? Are banks well equipped to ensure healthy lending in coming days and years? Or banks will continue to write off bad debts and sell bad debts to reduce Gross NPA ratio or make additional voluminous lending to HNI corporate to reduce ratio of Gross NPA. as hitherto done. If Government is somehow or the other ,able to recover money from all bad borrowers , there is no doubt to me that profit of each pubic bank will be at least five times of what they book now. Lacs of crores of good money deposited by people of India in various public banks is lost in bad loans, frauds , write offs, sacrifices in compromises and in money spent in recovery from bad borrowers. Otherwise , if the banks are allowed to accumulate bad loans , create new bad loans , write off bad loan and loss in fraud in the same fashion, I have no doubt that banks will continue to seek support from government or from LIC till they finally collapse and till LIC faces survival risk. If a business man is given a loan of Rs.one lac to do business, he may earn Rs.2000 to Rs.20000 per month depending upon the nature of his business. At least he has to earn Rs.2000 pm (2 percent per month ) so that he may pay Rs.1000 p.m.( one percent of capital per month) as interest to the bank and keep Rs.1000 p.m. (one percent of fund invested ) for him and his family. It is assumed that the business man has not invested his contribution as margin. SBI had a deposit base of Rs 13,94,408.50 crore as on 31st March 2014 . It means SBI has been enjoyed public fund of Rs.13,94,408 crore during the year 1914-15 . For the purpose of easy calculation , we assume that SBI had a deposit base of Rs.14 lac crore. As such SBI is supposed to earn minimum of Rs28000 crore per month. Or you may say that SBI should earn at least one percent of public fund per month as interest which a common businessman is supposed to pay as interest. In this case for SBI , Rs.14000 crore per month is equivalent to monthly interest and annual profit should be at least Rs168000 crore .As against it SBI has earned only Rs.13000 crore as net profit during the year 2014-15. Obviously SBI is not earning profit even equivalent to earning made by a common men on the capital of Rs.one lac. Similarly none of public bank is able to earn even one percent of public fund per month. Not to speak of per month , they are not earning even one percent per year of total fund they are having as deposit received from public. IN this way , we may say that though each bank is earning profit somehow or the other , some are also running in loss, but none of them are earning as they are supposed to . Profitability of each bank is at risk and getting eroded quarter after quarter. Even return of equity has sharply come down from more than one percent to half of percent.

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