SBI: Sequential fall in slippages brings respite amid falling earnings

State Bank of India (SBI) declared its results for the first quarter of the financial year 2015-16 (1QFY17). The net interest income for the quarter grew by 4.2% YoY and the profit was down by 31.7% YoY. Here is our analysis of the results.

Performance summary

• Net interest income (NII) increased by 4.2% YoY in 1QFY17 on a 11.4% YoY growth in advances. In a sign of improving asset quality, the share of retail loans in the overall loan book has risen to 23% in 1QFY17 as compared to 21% in 1QFY16.
• The deposits for the bank grew by 10.5% YoY led by growth in CASA and term deposits. Each of the savings bank and current bank accounts increased by 14% YoY and 13% YoY, respectively during the quarter. The CASA ratio increased to 42.8% in 1QFY17 as compared to 41.7% in 1QFY16.
• Non-interest income increased by 44% YoY backed by a steep rise in profit earned from sale of investments and recovery in written-off assets.
• NIMs (net interest margins) contracted by 0.16% to 2.83% due to transmission of 90 basis points cut in the Marginal Cost of Lending rate and increase in bad loans by Rs 450 billion during the quarter.
• Aided by reduction in employee contributions, the bank has been able to rein in operating expenses as compared to growth in income. The cost-to-income ratio fell to 48.9% in 1QFY17 from 51.1% in 1QFY16.
• Net NPAs (Non Performing Assets) ratio has increased from 2.2% in 1QFY16 to 4.1% in 1QFY17 on increased slippages. But on a positive note, sequentially the slippages have come down substantially to Rs 87.9 billion in 1QFY17 from Rs 303 billion in the preceding quarter. The provision coverage declined to 61.6% in 1QFY17 as compared to 69.5% in the year-ago quarter.
• Net profit fell by 31.7% YoY due to an 85% jump in provisioning during the quarter.
  
  

  Standalone Financials

  Rs (m)	1QFY16	1QFY17	Change
  Interest income	396,430	415,940	4.9%
  Interest expense	259,110	272,810	5.3%
  Net Interest Income	137,320	143,130	4.2%
  Net interest margin (%)	2.99%	2.83%
  Other Income	50,880	73,350	44.2%
  Other Expense	96,180	105,940	10.1%
  Provisions and contingencies	40,000	74,130	85.3%
  Profit before tax	52,020	36,410	-30.0%
  Tax	15,100	11,200	-25.8%
  Profit after tax/ (loss)	36,920	25,210	-31.7%
  Net profit margin (%)	9.3%	6.1%
  No. of shares (m)		7762.8
  Book value per share (Rs)*		180.2
  P/BV (x)		1.42

  * (Book value as on 30th June 2016)