SBI: Asset quality concerns continue
SBI was able to improve the share of low-cost Casa deposits, which rose 636 basis points year-on-year to 43 per cent.
SBI Personal Loan and SBI Home Loan are the bigger products from SBI.
State Bank of India’s (SBI’s) December quarter results were slightly better than expectations in terms of its top-line growth. Its standalone net interest income (interest earned minus expenditure) rose 9.7 per cent to Rs 6,316 crore.
However, higher expenditure meant that net profit (at Rs 2,479.05 crore) was almost the same as in the year-ago quarter. The NII (net interest income) growth was aided by a decline in cost of funds and a 19.15 per cent increase in advances, especially in home, auto and international segments. However, a benign interest rate environment and lending at sub-prime lending rates, particularly in the home loan segment, led to a 62 basis points fall in yield to 9.80 per cent.
Notably, SBI was able to improve the share of low-cost Casa deposits, which rose 636 basis points year-on-year to 43 per cent — the highest in seven quarters. While this helped bring down the cost of funds, the reduction in yields was sharper. Hence, even as SBI’s net interest margins were up 27 basis points to 2.82 per cent as compared to September 2009, they were lower than the 3.1 per cent reported in December 2008 quarter.
Robust loan book growth helped the bank’s fee income rise 36 per cent. Higher costs on account of expansion of its ATM and branch networks and hiring of new employees led to a 12.5 per cent rise in operating costs to Rs 5,064 crore. Hence, operating profits grew just 3 per cent to Rs 4,618 crore.
Some surprise came from the slippage in asset quality on a sequential basis with both gross and net non-performing assets (NPA) rising 12 and 15 basis points to 3.11 per cent and 1.88 per cent, respectively. Along with restructured assets, analysts say the total problem assets work out to over 6 per cent of gross advances.
Banks are mandated to make provisions for bad loans. For the quarter, SBI’s provision cover ratio fell from 59.14 per cent in the September 2009 quarter to 56.19 per cent, at a time when banks have been mandated to increase the same to 70 per cent by September 2010.
For this, SBI will have to provide about Rs 1,000 crore every quarter, which along with the need to provide for fresh NPAs, will keep profits under pressure for the next three quarters, say analysts. These concerns, coupled with the pressure on yields, have seen the stock underperform in the past three weeks, a trend which analysts believe will continue in the near-term.
SBI Personal Loan and SBI Home Loan are the bigger products from SBI.
State Bank of India’s (SBI’s) December quarter results were slightly better than expectations in terms of its top-line growth. Its standalone net interest income (interest earned minus expenditure) rose 9.7 per cent to Rs 6,316 crore.
However, higher expenditure meant that net profit (at Rs 2,479.05 crore) was almost the same as in the year-ago quarter. The NII (net interest income) growth was aided by a decline in cost of funds and a 19.15 per cent increase in advances, especially in home, auto and international segments. However, a benign interest rate environment and lending at sub-prime lending rates, particularly in the home loan segment, led to a 62 basis points fall in yield to 9.80 per cent.
Notably, SBI was able to improve the share of low-cost Casa deposits, which rose 636 basis points year-on-year to 43 per cent — the highest in seven quarters. While this helped bring down the cost of funds, the reduction in yields was sharper. Hence, even as SBI’s net interest margins were up 27 basis points to 2.82 per cent as compared to September 2009, they were lower than the 3.1 per cent reported in December 2008 quarter.
Robust loan book growth helped the bank’s fee income rise 36 per cent. Higher costs on account of expansion of its ATM and branch networks and hiring of new employees led to a 12.5 per cent rise in operating costs to Rs 5,064 crore. Hence, operating profits grew just 3 per cent to Rs 4,618 crore.
Some surprise came from the slippage in asset quality on a sequential basis with both gross and net non-performing assets (NPA) rising 12 and 15 basis points to 3.11 per cent and 1.88 per cent, respectively. Along with restructured assets, analysts say the total problem assets work out to over 6 per cent of gross advances.
Banks are mandated to make provisions for bad loans. For the quarter, SBI’s provision cover ratio fell from 59.14 per cent in the September 2009 quarter to 56.19 per cent, at a time when banks have been mandated to increase the same to 70 per cent by September 2010.
For this, SBI will have to provide about Rs 1,000 crore every quarter, which along with the need to provide for fresh NPAs, will keep profits under pressure for the next three quarters, say analysts. These concerns, coupled with the pressure on yields, have seen the stock underperform in the past three weeks, a trend which analysts believe will continue in the near-term.
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