SBI: Big Treasury Income May Fail To Compensate For NPA Provisions

State Bank of India (SBI) declared its results for the second quarter of the financial year 2015-16 (2QFY17). The net interest income for the quarter grew by 1.3% YoY and the profit was down by 34.5% YoY. Here is our analysis of the results.

Performance summary

• Net interest income (NII) increased by a mere 1.3% YoY in 2QFY17 on an 8% YoY growth in advances. In a sign of improving asset quality, the share of retail loans in the overall loan book has risen to 24% in 2QFY17 as compared to 21% in 2QFY16. In 1HFY17, NII grew by 2.7%.
• The deposits for the bank grew by 13.8% YoY led by growth in CASA and term deposits. Each of the savings bank and current bank accounts increased by 16% YoY and 13% YoY, respectively during the quarter. The CASA ratio increased to 42.7% in 2QFY17 as compared to 42.2% in 2QFY16.
• Non-interest income increased by 36% YoY and 40% YoY, respectively in 2QFY17 and 1HFY17backed by higher fee income, forex income coupled with a steep rise in profit earned from sale of investments.
• NIMs (net interest margins) contracted by 0.21% to 2.8%.
• The cost-to-income ratio increased by 1.1% to 50.9% in 2QFY17. For 1HFY17, the cost-to-income ratio has marginally declined below 50%.
• Net NPAs (Non Performing Assets) ratio has increased from 2% in 2QFY16 to 4.2% in 2QFY17 on increased slippages. But on a positive note, sequentially the slippage ratio has come down to 2.3% from 2.7% in the preceding quarter. The provision coverage declined to 62% in 2QFY17 as compared to 70.5% in the year-ago quarter.
• Net profit fell by 34.5% YoY in 2QFY17 due to 81% jump in provisioning during the quarter. For 1HFY17, the net profit was down by 33.2% YoY.
  
  

  Standalone Financials

  Rs (m)	2QFY16	2QFY17	Change	1HFY16	1HFY17	Change
  Interest income	406,580	423,190	4.1%	803,000	839,120	4.5%
  Interest expense	264,050	278,810	5.6%	523,160	551,630	5.4%
  Net Interest Income	142,530	144,380	1.3%	279,840	287,490	2.7%
  Net interest margin (%)	3.01%	2.80%
  Other Income	61,970	84,240	35.9%	112,850	157,590	39.6%
  Other Expense	101,840	116,370	14.3%	198,020	222,310	12.3%
  Provisions and contingencies	43,610	78,970	81.1%	83,600	153,100	83.1%
  Profit before tax	59,050	33,280	-43.6%	111,070	69,670	-37.3%
  Tax	20,260	7,890	-61.1%	35,360	19,090	-46.0%
  Profit after tax/ (loss)	38,790	25,390	-34.5%	75,710	50,580	-33.2%
  Net profit margin (%)	9.5%	6.0%		9.4%	6.0%
  No. of shares (m)					7762.8
  Book value per share (Rs)*					183.9
  P/BV (x)					1.52

  * (Book value as on 30th September 2016)