“Going forward in the next quarter we think another Rs500 crore-Rs600 crore would slip into NPAs. So the slippage ratio for these loans too would go up from 14.5% to 17% plus.” – SBI chairman OP Bhatt
State Bank of India (SBI), the country's largest lender, on Monday reported a 22.2% decline in consolidated net profit to Rs2,437.10 crore for the second quarter ended 30 September 2010. The Bank had a net profit of Rs3,133.10 crore in the year-ago period. The profit figures were well below analysts estimates. This was mainly due to increased provisioning for bad loans, the Bank said in a statement.
On a standalone basis, SBI's net profit grew by just 0.4% to Rs2,501.30 crore in the second quarter, against Rs2,490 crore in the year-ago period. Standalone income increased to Rs23,813.30 crore in the quarter under review from Rs21,301 crore, a growth of 11.7%.
According to BRICS Securities, pension/gratuity liability and costs related to a higher employee base pressured the bottom line, but the major disappointment was due to higher provision expenses towards higher non-performing assets (NPAs) and meeting the 70% threshold set by the Reserve Bank of India (RBI).
The Bank said that it had increased provisions for NPAs by 96% to Rs2,160.50 crore. The provision ratio widened to 62.78% as of 30th September from 60.70% as of 30th June. The RBI in October 2009 said banks would have to increase the minimum provision ratio to 70% from 10%.
NPA provisions were up 116% year-on-year (y-o-y) to Rs2,162.50 crore and the bank provided Rs300 crore towards provision for gratuity. It has provided an excess provision of Rs449 crore to increase its provision coverage ratio. The resulting provision coverage has improved by 320 basis points sequentially to 50%. After including technical write-offs, the provision coverage stands at 62.78% which, though better than the previous quarter, is still below the 70% level. Sharekhan wrote in its review of the result that considering the extension of the deadline to March 2011, the Bank should be able to reach the stipulated level of 70%.
Gross non-performing assets have increased by 11.4% quarter-on-quarter (q-o-q) to Rs23,205 crore. The gross slippages during the quarter were high at Rs4,412 crore. Out of these, Rs661 crore are from restructured assets. Of the restructured assets, about 14.5% have slipped into the NPA category with incremental slippages primarily from the mid-corporate segment.
SBI's total income, however, increased by 14.6% to Rs37,925.40 crore in the July-September quarter from Rs33,101.6 crore in the corresponding previous quarter. The Bank posted a net profit after minority interest of Rs2,363.90 crore in the period, compared to Rs3,050.90 crore in the corresponding period last year.
In Q2FY2011, SBI's loans grew by a strong 19.5% y-o-y to Rs6,93,224 crore, while deposits grew at a slower pace of 10.7% y-o-y. The current account and savings account (CASA) ratio improved by 28 basis points q-o-q to 47.79%.
SBI's capital adequacy ratio (CAR) stood at 13.20% as on 30 September 2010 with the tier-I capital adequacy at 9.6%.
"Short-term interest rate analysis is a function of demand for credit and liquidity. Liquidity is tight in the market and the RBI has decided that they have slightly tighter liquidity policy," SBI chairman O P Bhatt said after announcing second quarter results. "Going forward in the next quarter we think another Rs500 crore-Rs600 crore would slip into NPAs. So the slippage ratio for these loans too would go up from 14.50% to 17% plus.
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The sustained decline in profitability of the bank, coupled with the additional impact of further provisioning on its books is of grave concern for shareholders
Kerala-based Dhanlaxmi Bank is treading on choppy terrain these days, if its financials are anything to go by. The lender's bottom-line has been taking a hit for the past five quarters now, and faces some more heat given that it has yet to meet the mandatory provisioning requirement against its loan book.
The recent September quarter results have failed to provide much cheer to investors. Despite a healthy growth in the top-line, the bank's profits have been impacted due to staffing and branch expansions. The bank registered a 52% growth in revenues as advances have picked up considerably in this quarter. However, its net profit tanked a massive 74% to Rs1.62 crore from Rs6.26 crore in the corresponding quarter last year. Operating profit growth was muted at 9%, although entering positive territory after a long time.
Its performance over the past five quarters indicates that the bank finds itself in a sticky situation. Although average growth in revenues is fairly sound at 36%, the company's operating performance has averaged -39% over the past five quarters. On an average, net profits have declined 62% over this period.
The bank's net interest margin (NIM) has remained at around 2.4% over the past five quarters, which is much lower compared to some of its peers in the banking industry. On the asset performance side, the bank has gross non-performing assets (NPAs) at around 1.25% of its loan book while net NPAs stand at around 0.7%. However, the bank's loan-loss provisioning coverage at the end of September stood at only 46%. This is a long way from the mandatory provisioning requirement of 70% fixed by the Reserve Bank of India (RBI). This means that the bank will have to endure more stress on its profitability as it makes more provisioning in the coming quarters to address this deficit.
Recently, the bank announced the acquisition of 15% stake in financial services provider Destimoney Securities. This acquisition cost the bank around Rs13 crore. Destimoney Securities is a 100% subsidiary of Destimoney Enterprises, a financial services provider and advisory company owned and controlled by private equity firm New Silk Route.
According to bank officials, the primary reason behind this investment was to offer its retail customers access to online broking services through the bank. Although it could help the bank generate more current account, savings account (CASA) deposits, the investment is a costly affair at a time when the bank is experiencing more than just a pinch on its financial statement.