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SBI: Asset Quality and Slow Credit Remain Achilles' Heel - Views on News from Equitymaster
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  • Aug 22, 2017 - SBI: Asset Quality and Slow Credit Remain Achilles' Heel

SBI: Asset Quality and Slow Credit Remain Achilles' Heel
Aug 22, 2017

State Bank of India (SBI) declared its results for the first quarter of the financial year 2017-18 (1QFY18). The net interest income for the quarter declined by 3.5% YoY and the profit was up by 436% YoY. Here is our analysis of the results.

Performance summary
  • Interest Income grew by a subdued 0.8% in 1QFY18 on a 1.5% YoY growth in advances coupled with cut in Base and MCLR rates. However, a faster 2.9% YoY rise in interest expense pulled down Net interest income (NII) by 3.5% YoY during the quarter.
  • The deposits for the bank grew by 13% YoY led by 24% jump in CASA. The CASA share increased to 44.4% in 1QFY18 as compared to 40.7% in 1QFY17.
  • The Net Interest Margin (NIMs) contracted by 0.48% YoY due to shift towards MCLR based pricing, downward re-pricing of 1 year MCLR linked loans coupled with the claw-back of interest income due to fresh slippages.
  • Non-interest income fell by 8.6% YoY in 1QFY18 as a result of a 49% YoY fall in profit earned from sale of investments.
  • The cost-to-income ratio increased by 5% YoY to 53.6% in 1QFY18 mainly due to a 10% rise in overheads. The staff expenses fell marginally after 7,247 employees retired top of scale whereas 625 joined in at the entry level pay-scale.
  • Asset quality continued to slide during the quarter. The Gross NPAs (Non-Performing Assets) ratio has increased to 10% in 1QFY18 from 7.4% in 1QFY17 on fresh slippages. According to the bank, slippages have risen post-merger as small corporate accounts below Rs 500 m were not aligned whereas the follow-up in case of the retail segment could not be monitored. Additionally, agri and educational loan waivers announced by states as also the forbearance period coming to an end further exerted pressure on the asset quality. On a positive note, the slippage ratio has come below 6% at the end of June 2017 quarter. The provision coverage increased to 61% in 1QFY18 as compared to 60% in the 1QFY17.
  • Even though loan loss provisions increased by 7.6% YoY during the quarter, the lower share of normally ageing advances resulted in a 32% YoY fall in overall provisions. Resultantly net profits increased five folds during the quarter.
  • The bank remains well capitalized with the capital adequacy ratio and Tier I capital ratio standing at 13.3% and 10.7%, respectively.

    Standalone Financials after Merger
    Rs (m) 1QFY17 1QFY18 Change
    Interest income 544,940 549,050 0.8%
    Interest expense 362,480 372,990 2.9%
    Net Interest Income 182,460 176,060 -3.5%
    Net interest margin (%) 2.84% 2.36%  
    Other Income 87,610 80,060 -8.6%
    Other Expense 132,450 137,380 3.7%
    Provisions and contingencies 130,370 89,300 -31.5%
    Profit before tax 7,250 29,440 306.1%
    Tax 3,510 9,390 167.5%
    Profit after tax/ (loss) 3,740 20,050 436.1%
    Net profit margin (%) 0.7% 3.7%  
    No. of shares (m)   8632.1  
    Book value per share (Rs)*   217.0  
    P/BV (x)   1.27  

    * (Book value as on 30th June 2017)

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