SBI Reduces Anxiety Over Banking Sector With First Quarter Performance And Outlook

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MUMBAI: The State Bank of India (SBI) has given enough reason to be happy with its first quarter performance. Not only has India’s largest lender succeeded in reducing its bad loans, its outlook for them is not as alarming as expected.

SBI reported an 81% year-over-year jump in net income and the sale of the stake in its life insurance subsidiary helped a lot. This does not negate the fact that his basic income has increased by an impressive 16%. While loan growth of 7.6% may seem weak, it is not a sudden change on a balance sheet size of ??41.17 trillion.

Following the trend of its peers, SBI moratorium levels also fell sharply to 9.5% in June, from around 30% three months ago. President Rajnish Kumar said the moratorium does not necessarily remove slippage ratios and the bank has not seen big changes in behavior among borrowers. This outlook should give investors some comfort at a time when most banks appeared cautious about asset quality.

Although SBI is more optimistic than its peers on asset quality, it has ensured sufficient risk insurance. At the end of June, the bank held ??3008 crores as specific provisions for covid-19 risks. Total provisions increased 36% year on year, a sign that the lender has increased its provisions on all fronts. This increase came even as its bad debt ratios were declining. Gross bad debt accounted for 5.44% of total books and the provision coverage ratio was 86%, one of the highest in the industry.

But the SBI has its Achilles heel and it’s small business loans. Admittedly, the share of small and medium-sized enterprises (MSMEs) is only 14% in the total book. But Kumar seemed cautious on this portfolio. “We need to watch the SME book and the lower segment of the mid-sized business segment requires maximum vigilance,” he said at a virtual press conference.

SBI also appeared optimistic about growth prospects. He expects his loan growth to be 8% in FY21 and Kumar added that that could increase as well. It expects a resumption of credit disbursements in the second half of fiscal year 21. SBI has a pipeline of project sanctions of more than ??1 trillion, he said. Indeed, even as the covid-19 pandemic rages on, SBI has been able to increase its loan portfolio.

But the growth in personal loans has been lacking for obvious reasons. The pandemic made Indians cautious and housing paid the price. Home loan disbursements decreased 9% compared to last year. Despite this, there has been a remarkable improvement in disbursements compared to the March-May lockdown period. The biggest leap has been in personal loans. Unsecured personal loans rose 41% in June compared to a 72% drop in April.

With the economy unlocking in stages, with restrictions largely regional, the SBI is confident of a turnaround. The more than 2% increase in the share shows that investors are also convinced.

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