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SBI: Profits hit by clean-up exercise
Feb 13, 2016

State Bank of India (SBI) declared its results for the third quarter of the financial year 2015-16 (3QFY16). The net interest income for the quarter fell by 1.2% YoY and the profit was down by 61.7% YoY. Here is our analysis of the results.

Performance summary

  • Net interest income (NII) declined by 1.2% YoY in 3QFY16 on a 12.9% YoY growth in advances. For 9mFY16, NII increased by 3.2% YoY.
  • Non-interest income increased by 17.9% YoY and 24% YoY in 3QFY16 and 9mFY16, respectively backed by a steep rise in profit earned from sale of investments.
  • NIMs (net interest margins) contracted by 0.19% to 2.93% in 3QFY16 on account of relatively slower fall in cost of deposits as compared to yield on advances.
  • Net NPAs (Non Performing Assets) ratio has increased from 2.8% in 3QFY15 to 2.9% in 3QFY15 on increased slippages to comply with Asset Quality Review norms of RBI.
  • Net profit fell by 61.7% YoY in 3QFY16 due to a six folds jump in provisioning during the quarter. For 9mFY16, net profit was down by 7.2% YoY.
  • Capital adequacy ratio stood at 12.5% at the end of 3QFY16 as per Basel III norms.
  • Standalone Financials

    Rs (m) 3QFY15 3QFY16 Change 9mFY15 9mFY16 Change
    Interest income 385,460 405,530 5.2% 1,122,960 1,208,540 7.6%
    Interest expense 247,700 269,470 8.8% 719,920 792,630 10.1%
    Net Interest Income 137,760 136,060 -1.2% 403,040 415,910 3.2%
    Net interest margin (%) 3.12% 2.93%  
    Other Income 52,380 61,780 17.9% 140,610 174,630 24.2%
    Other Expense 96,270 101,860 5.8% 275,870 299,880 8.7%
    Provisions and contingencies 11,470 73,330 539.3% 132,800 163,100 22.8%
    Profit before tax 82,400 22,650 -72.5% 134,980 127,560 -5.5%
    Tax 53,300 11,500 -78.4% 41,380 40,690 -1.7%
    Profit after tax/ (loss) 29,100 11,150 -61.7% 93,600 86,870 -7.2%
    Net profit margin (%) 7.5% 2.7%   8.3% 7.2%
    No. of shares (m)     7762.8
    Book value per share (Rs)*     177.8
    P/BV (x)     0.87

    *(Book value as on 31st December 2015)

    What has driven performance in 3QFY16?

    • The net interest income declined by 1.2% on a 5.2% growth in interest income as interest expenses grew at a faster 8.8% YoY during the quarter. Gross advances were up by 12.9% YoY led by strong growth in large corporate, retail and international advances.
    • The deposits for the bank grew by 10.7% YoY led by growth in CASA and term deposits. Each of the savings bank and current bank accounts increased by 12% YoY during the quarter. The CASA ratio increased to 42.7% in 3QFY16 as compared to 42.6% in 3QFY15.
    • Modest growth in business

      (Rs m) 3QFY15 3QFY16 Change
      Advances 12,654,830 14,284,950 12.9%
      Deposits 15,100,770 16,714,160 10.7%

    • Backed by 34% jump in profit earned from the sale of investments and higher miscellaneous income, the non-interest income grew by 17.9% YoY during the quarter.
    • The bank has been able to keep its operating expenses largely under control aided by modest increase of 4.8% and 7.4% in staff expenses and overhead expenses, respectively. The cost-to-income ratio increased to 51.5% in 3QFY16 from 50.6% in 3QFY15.
    • The bank's NIMs have contracted slightly as the cost of deposits has come down by 11 basis points YoY to 6.3%. But the yield on advances has come down by 44 basis points YoY to 10.12% during the quarter.
    • The asset quality has been hit after a large number of accounts of PSU's have been classified as bad in accordance with RBI's Asset Quality Review (AQR). Out of the total of Rs 159.6 bn of slippages recorded during the quarter, a lion's share of 81.5% at Rs 130 bn is on account of slippages arising due to AQR
    • The gross NPA to advances ratio rose by 0.95% to 5.1%. The net NPA to advances ratio was down by 0.75% to 2.89% for the quarter. The provision coverage improved to 65.2% in 3QFY16 as compared to 63.6% in the year-ago quarter.
    • A sharp 539% jump in provisioning for bad loans pulled down the net profit by 61.7% YoY during the quarter. The bank recognized the provisioning impact in line with RBI's Asset Quality Review required to be carried out in the latter half of FY16.
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