Gold Silver Reports (GSR) – SBI Q4 Results today: SBI Too Will Post Q4 Loss, But How Much? — Punjab National Bank (PNB) has reported a record Rs13,417-crore loss for the March quarter (Q4). All eyes are now on State Bank of India (SBI), the nation’s largest lender. India’s largest lender State Bank of India (SBI) is seen reporting on Tuesday a quarterly loss for the second time in row. According to a poll of 14 analysts by Bloomberg, the bank is expected to post a Rs1,728 crore loss for the March quarter, or Q4.
It will certainly report a loss on Tuesday, more than what it had posted in the December quarter (Rs2,416 crore) but may not surpass that of PNB. Two critical factors will impact the quantum of SBI’s loss in Q4—provision for the erosion in the value of its bond portfolio as well as the bad assets referred to the National Company Law Tribunal (NCLT) for resolution.
When the prices of bonds drop, their yields rise; the banks need to make good the loss in the value of their bond portfolio. The Reserve Bank of India (RBI) has allowed the banks to spread the provisioning for depreciation in the bond portfolio over four quarters. Will SBI take advantage of that? Or, will it take the hit at one go in Q4?
Similarly, RBI has relaxed the provision norms for the bad loans referred to the NCLT. It had initially wanted banks to provide for 50% of secured loans upfront but later brought it down to 40%.
SBI has referred at least Rs78,000 crore worth of high-value bad loans to the NCLT. In many cases, the bank had already provided 50% or more but the prospects of recovery in some of the cases have brightened. Will SBI write back part of the excess provision already made?
SBI’s loss will certainly be less than PNB’s but more than that of Canara Bank (Rs4,860 crore).
SBI’s gross non-performing assets (NPAs) could rise up to Rs2.2 trillion, around 11% of its loan assets; after provisioning, the net NPAs could be around 6%, far lower than PNB’s 18.38% gross NPAs and 11.24% net NPAs.
Will SBI see good days after the March quarter? Since 2010, successive SBI chiefs have been making statements, saying the worst has been over on the NPA front. Is the current boss Rajnish Kumar too promising the worst is over? I would not be surprised if SBI ends up reporting a loss in the June quarter too, but it may see happier days from the second quarter of the current fiscal year with NPAs going down, recovery of bad assets and higher fee and interest income.
Kumar is quietly making some key structural changes in SBI. In his scheme of things, profitability is more important than expanding the balance sheet.
Incidentally, more than half of SBI’s loan book now is made of retail assets where the margin is higher. It is also focusing on fee income, aggressively.
Among other things, Kumar has changed the mandate of the bank’s corporate accounts group (CAG) which has been handling large loans of Rs500 crore and more since mid-1990s. Now, CAG will focus only on companies with at least AA rating where the probability of default is very low. Along with this, the credit review department has been revamped and the multi-tier credit committee has been reconstituted to ensure the quality of loan assets.
Going beyond credit lines, SBI is also forging relationships with large corporations which may not have loan requirement but present other business opportunities such as vendor financing, supply chain management, among others. More importantly, Kumar has curtailed the role of SBI Capital Markets Ltd, its merchant banking unit, in project financing.
From now on, SBI Caps will focus on investment banking and not team up with the parent for advisory on projecting financing and loan syndication, in which it has traditionally been involved. Doing it directly, the bank will cut down the turnaround time of sanctioning project loans. A well laid-out succession plan, faster promotions and greater emphasis on training complete Kumar’s idea of a new SBI.
Roughly, one out of every three Indians is an SBI customer. Its 278,000 employees serve them through 24,000 branches and 59,000 ATMs across India. Kumar can win his battle against NPAs and lift the bank to the next orbit only if he gets government support in terms of freedom of not doling out money to certain sectors where recovery is tough for many reasons as well as keeping the morale of his colleagues high, by encouraging them to lend and rewarding them for good work, including giving stock options—a proposal long pending with the government.
SBI had posted net loss of Rs2,416 crore for the fiscal third quarter.
1. Profitability
SBI is likely to report a loss because of a hike in provisions to cover rising bad loans and losses on its bond portfolio. Non-performing assets (NPAs) are expected to surge because of the Reserve Bank of India’s (RBI’s) revised norms on stressed asset resolution.
Rising bond yields has strained profitability of most banks as they have to set aside funds in the form of mark-to-market (MTM) provisioning to make up for the losses. Bond yield and prices move in opposite direction.
“RBI circular on spreading of MTM losses over the next four quarters including the investment depreciation related losses for Q3 FY18 could provide some headroom to SBI. We await the bank’s move towards the same,” Centrum Broking said in a pre-earnings report.
2. Bad loans
SBI is likely to report a sharp jump in gross NPAs because of new additions from its restructured book, according to analysts. In its 12 February circular, RBI has withdrawn host of restructuring schemes and has set a 180-day timeline for resolution. SBI had over Rs36,900 crore of loans under erstwhile schemes like 5/25 refinancing, strategic debt restructuring (SDR) and scheme for sustainable structuring of stressed assets (S4A) as of 31 December 2017.
Analysts said that SBI chairman Rajnish Kumar’s commentary on asset quality trends and resolution under Insolvency and Bankruptcy Code (IBC) is key monitorable. SBI’s exposure fund-based exposure to accounts, which are part of the two lists of RBI and referred for insolvency stood at over 78,000 crore. The bank is holding a total provision of 60% against these accounts.
3. Loan growth
Analysts are expecting SBI to continue to print subdued loan growth mainly because of its cautious stance of corporate lending. However, retail loans are expected to grow in double digits. As of 31 December, SBI’s total loans grew 2.5% year-on-year to Rs19.2 trillion. Given the bank’s focus on profitability instead of balance sheet expansion, Kumar’s commentary on corporate loan opportunities would be watched out to gauge broader sectoral trend. Most large banks are limiting their exposure to only better rated companies. SBI too is working on a similar strategy.
4. Internal changes
Apart from earnings, SBI chairman Kumar is expected to spell out bank’s overall long-term strategy on capturing loan growth and risk management. The bank has already changed the mandate of its corporate account group (CAG) department to focus only on companies with at least AA rating. It has also decided not to work with merchant banking unit SBI Capital Markets on project financing and loan syndication. Kumar, who took over in October, may also share his plans on various subsidiaries of SBI. He is also expected to share his thoughts on health of the Indian banking sector, especially state-owned banks.
