The overall stress reducing will be seen only when the economy is doing much better, which will be when there is a demand pick-up. Demonetization has taken us back by a quarter: Arundhati Bhattacharya
State Bank of India's (SBI) battle against bad loans will continue for the next few quarters and hinge on the speed of India's economic revival after the demonetization slackened growth, particularly in the micro, small and medium enterprise (MSMEs) segments.
A sharp reduction in lending rate and outflow of deposits is also expected to put pressure on its net interest margins by at least 4-5 basis points.
The agility in resolving bad loans will be key to SBI's profitability in the next few quarters. The bank's gross NPAs at the end of the third quarter stood at Rs 1.08 lakh crore, which is 7.23% of the total loans.
Arundhati Bhattacharya, chairman, SBI, said in a post-earnings conference call, "The overall stress reducing will be seen only when the economy is doing much better, which will be when there is a demand pick-up. Demonetization has taken us back by a quarter."
She expects the stress to reduce in a quarter or two, when the demand for credit is back.
The bank has already provided Rs 6,020 crore for the standard stressed assets in advance. With a quarterly addition of Rs 10,000 crore to the NPA stock, the absolute number of bad loans for the bank will take a while to recede. SBI managing director B Sriram said these extra provisions could come handy if provision requirement goes up in the coming quarters due to the ageing of NPAs.
Deposits grew 22.10% on the back of demonetization to touch Rs 20.40 lakh crore by December-end.
SBI's advances grew only 4.81% from a year ago to Rs 14.97 lakh crore as top rated companies migrated to commercial paper and corporate bond market. Advances growth has shifted to the investment book. Retail advances continued to grow at 17.5%, of which home loans grew 18.5 % over the previous year. However, the pace of growth came down with home loans, falling to Rs 2,100 crore a month from Rs 2,800 crore a month.
But SBI continues to be the largest player in the home loan market with loans outstanding of Rs 2,12,600 crore at the end of the third quarter. Bhattacharya said she expects the bank to report 6.5% to 7% credit growth for the current fiscal and 11% credit growth in fiscal 2018. Retail credit growth is expected to be higher at 18% in the next fiscal.
"Working capital requirements will rise as commodity prices firm up and capacity utilisation goes up, which may induce credit growth," Bhattacharya said in the concall.
The bank was able to announce a 134% jump in quarterly profit over the previous year at Rs 2,610 crore, driven by a low base and about Rs 1,794 crore received from the share sale of its life insurance subsidiary, part of this money was also used towards additional provisions of standard stressed assets.
Religare Securities said in a report, "Non-corporate slippages were too low during the quarter, given the RBI dispensation, at Rs 2,800 crore versus Rs 4,900 crore in the preceding quarter and Rs 7,100 crore in the first quarter of fiscal 2017. It will be difficult for the company to repeat the performance on non-corporate slippages in the coming quarters, especially agri and MSME loans, given the spillover effect of demonetization."
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