SBI posts record loss but sees a year of happiness

Treading on a year of hope, the government-owned State Bank of India (SBI) signalled a year of optimism even after reporting a record net loss of Rs 7,718 crore on the back of losses on its treasury book, incremental provisions for non-performing assets and higher provision towards wage revision. The loss would have been higher had it not been for a write back of Rs 4,495 crore during the quarter. This is the second consecutive quarter that the bank has reported losses.

However Rajnish Kumar, chairman, SBI, seemed optimistic saying that the worst is behind the bank. At a media conference, he said, "Last year was the year of despair, this year is the year of recovery and hope, next year will be the year of happiness." Kumar added that the NPA recognition is complete and the watch list Rs 25,802 crore that the bank set up during the quarter is unlikely to slip. The bank is setting up new risk mitigation procedures with a focus on above investment grade corporate clients.

Despite reporting huge quarterly loss, SBI's share price jumped 6% during the day, hitting a high of Rs 259 apiece before ending 3.7% higher at Rs 254.15, after the management indicated that the deterioration in the asset quality is complete.

"Markets appeared to be impressed by the SBI results for two reasons. Firstly, there is the first indication that the NPA cycle may be turning around and combined with growth in advances, this could result in improved profitability in the coming quarters. Secondly, the NCLT resolution will result in a write-back of close to Rs 1 trillion for Indian banks and SBI is likely to be the biggest beneficiary," said Jaikishan J Parmar, analyst with Angel Broking.

The gross NPA of the bank rose to Rs 2,23,427 crore with fresh additions during the quarter being about Rs 33,670 crore after Rs 5,662 crore of loans slipped from the restructured book of the bank following Reserve Bank of India's (RBI) circular which withdrew various schemes that allowed lower provisioning for stressed assets.

But the slippage ratio improved to 4.85% during FY19 from 5.78% in the previous financial year. Kumar said that he expects a haircut from the stressed assets referred to the first list of NCLT of about 52% and expects bulk of the resolutions to take place during the year. The second list where it has undertaken a 75% provisioning is also likely to resolved during the current financial year.

Provisions for the bad loans climbed Rs 28,096 crore during the March quarter, more than double the amount reported in the corresponding period last year. The rise in provisions included the capital set aside for bad loans, treasury losses and mark-to-market losses due to a rise in bond yields.

While domestic advances grew 4.8%, the real double digit growth came from retail loans, auto loans and housing loans which grew by 13-15% over the previous year. The bank is targeting a loan growth of 10% in the fiscal 2018-19 with chunk of the growth to come from retail loans.

SBI's loss will be the second largest loss after Punjab National Bank(PNB) reported its largest ever loss of Rs 13417 crore hit by the Nirav Modi scam which siphoned off almost the same amount of money from PNB.

The bank's total income during the quarter was also down 3.87% over the year ago period at Rs 68,436 crore. The net interest margin (NIM) was down at 2.67% from 3% the same time last year. The NII, which is the difference between interest earned and interest paid, was Rs 19,974 crore, down 5.18% from Rs 21,065 crore in Q4FY17.