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SBI NPAs Increase ; Associated Banks Drag Profits : Result Analysis


sbi-logoIndia’s Banking Giant SBI, which has a market share of 17.53% saw its net profit taking a hit, mainly due to high provisioning. The bank has reported a consolidated revenue increase of 9.11%, despite which, its net profit took a huge plunge by nearly 100% and is currently at 20 Cr. The high NPA and higher provisioning by its associated banks has been a dragging factor for SBI profits.

Key Takeaways:

  • SBI’s net interest margin dipped to 2.8% from 3.01% in same quarter last year.
  • Banks fee and forex income together saw a growth of 43.84% YoY.
  • SBI’s standalone NPA saw a growth of 4.18% QoQ, where as banks standalone advances grew by just 1.21% QoQ.
  • Provisioning increased by 14.34% QoQ. Currently the bank has provision coverage ratio (PCR) of 62.12%, Well below the prescribed limit of 70%.
  • With high provisions, the CAR has dropped to 13.94% from 14.01% previous quarter.
  • Banks consolidated deposits grew by 12.16% YoY and advances by 6.19%. Since last quarter the banks advance growth was almost flat at 0.45%.


  • SBI has been cutting its exposure to corporate loans and increasing its advances to retail sector. Corporate lending saw a de-growth of 4.24% YoY, Where as retail sector grew at 8.67% YoY.


The Watch List

Every bank has a watch list. These watch list are the composition of high risk loans, which might get converted to NPA in future. SBI has classified  textile, Iron & Steel,  Power, Oil & Gas, Chemicals, Construction, roads and engineering sectors as  high risk sectors. For the year ending Mar-16, SBI had Rs 34,776 Cr in its watch list.

  • SBI currently has Rs 25,951 Cr in its watch list. The watch list decreased by 25.37% since Mar-16
  • This is actually lower than Axis Bank’s watchlist, so that is a relief. But we don’t know if the watch list is the only source of future slippage.
  • On QoQ basis the loans in watch list declined by 17%.
  • In the current quarter 70.5% of the NPA slippages were from the watch list.
  • For the half year ended 30 Sep 2016, 73.82% NPA slippages were from the watch list.

Other Key Notable Points

  • SBI has opened 727 new branches in last 12 months, 9356 employees have retired and 4290 new recruits have joined. SBI has been taking a cautious approach on its employee strength and not going for expansion. It might be because of acquisition of the 5 banks, its not willing to remove its current employees but has been cutting down on new recruitment, to accommodate employees of its subsidiary banks.
  • Of the 2.62 Cr new accounts opened in the bank for Q2 FY17,  86.52% were under Jan Dhan Yojana.
  • Average Balance maintained in the account increased from Rs 909 in March-16 to Rs 1033 in Sept-16. An increase of 13.64%.

Associated Banks Performance

Associated banks have been dragging the profits of the SBI. Though the banks are under process of the merger, but their loan book is worsening quarter on quarter. SBI might end up taking a huge blow with regard to asset quality.
Associated banks had good asset quality till the end of March-2016 quarter. Post that, the asset quality has gone down, for instance SBP which has reported Gross NPA % at 6.73% in March-16, has suddenly increased its Gross NPA% to 19.08%!. Its almost 3 times. Its not only the case with SBP, the other banks are also following the same footsteps. Even their Provision coverage ratio (PCR) is dropping.


  • Gross NPA % of associated banks (SBH, SBT, SBBJ, SBM, SBP) went up from 9.14% in Q1FY17 to 13.77% for the reported quarter. Net NPA also increased from 5.50% to 8.75%.
  • NPA Slippage of associated banks together increased from 19.99% in last quarter to 25.76% for current reported quarter.
  • PCR also deteriorated for all the subsidiaries. The current PCR is at 49.89%, it was at 54.47% last quarter.
  • State Bank of Patiala (SBP) is in horrible shape with 19% NPAs. This has risen from 6%, to 19% in six months! (This is terrible. All the NPAs have been announced after SBI decided to take it over)

SBI is currently trading at a trailing P/E of 60.55!

The Demonetization Impact

The issue of demonetization should help SBI collect more deposits. As the largest lender, though, it may see NPAs also balloon up as people who depend on the cash economy (from farmers to middlemen to retailers) are borrowers too. And defaults will come.
The increased cost of operating the cash exchanges will change a lot of things too, for banks, especially SBI. However this bank in itself will see a lot of business since it has the widest reach among all banks. It will also see a huge potential for more loans as the economy recovers, but first, it will have to deal with the impact of a recession in businesses and households.
Overall, banks will see a longer term benefit, but in the short term the NPA issue and the cost of the demonetization exercise will hurt the SBI balance sheet, apart from the damage from the subsidiary banks. While it’s a large large bank and it won’t be in ‘trouble’, it will face slower growth as things move forward.
Disclosure: No positions.


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