SBI's Q3 net plunges 67 percent on higher provisioning for bad loans

Image: Mexy Xavier

Arundhati Bhattacharya, Chairman, State Bank of India

State Bank of India, the country’s largest lender by assets, reported a 67 percent decline in its consolidated net profit for the three months ended December 31, 2015, hit by higher provisioning made for bad loans.

SBI’s net profit fell to Rs 1,259.49 crore for the October-December period, from Rs 3,828.2 crore in the same period of the previous fiscal.

The bank’s shares fell 2.99 percent to close at Rs 154.2 on BSE, reacting to the weak earnings. The results were announced on Thursday when India’s stock markets collapsed in late afternoon trade mirroring European shares that fell sharply. The benchmark 30-share Sensex plunged 807.07 points, or 3.4 percent, to close at 22,951.83 points while the Nifty cracked the psychologically-important 7,000 mark to close at 6,976.35 points, down 239.35 point, or 3.3 percent.

SBI revealed that total provisioning for bad loans rose to Rs 7,644.52 crore in the fiscal third quarter of FY16, compared with Rs 5,327.51 crore in the year-ago period..

On a standalone basis, SBI’s net interest income—the difference between interest earned and interest expended—slid marginally to Rs 13,606 crore from Rs 13,777 crore for the corresponding period a year earlier, the bank said.

As of December 2015, SBI’s gross non-performing assets (NPAs) rose 17.4 percent year-on-year to Rs 72,791.73 crore from Rs 61,991.45 crore, in the year-ago period.

Emkay Research in a short note to clients called SBI’s quarterly earnings “modest”, as profits fell and asset quality deteriorated.

Several public sector banks have been struggling to cope with rising bad loans and higher provisions to cover for a risk of defaults. Earlier in the week, three public sector banks—Central Bank of India, Dena Bank and Allahabad Bank—posted net losses in their quarterly earnings while Punjab National Bank’s net profit fell 93 percent year-on-year.

The Reserve Bank of India has directed banks to clean up their balance sheets by March 2017. It has introduced several regulations and powers to boost governance at the boards of banks. Massive recapitalisation of state-owned banks from the government is awaited, which will help them to start lending more as economic growth picks up.