To put it in perspective, peers like HDFC Bank—which has the cleanest book in the business—have a PCR of over 80% for net NPAs of less than 1%. The sharp jump in SBI’s restructured assets is also surprising because the management had indicated in August that the pipeline of assets that could be recast was smaller at around R3,000-4,000 crore and one was under the impression this would happen over the rest of the year. But, clearly, companies are in more trouble than imagined and since the economy isn’t showing signs of an improvement just yet, SBI may want to rethink its provisioning strategy. As for business, the bank may also want to stop chasing volumes by pricing loans too competitively because in the current business environment that might simply result in higher credit costs.
It’s true SBI is sitting on surplus liquidity and it must be tempting to grow the top line but it’s probably better the bank lets go of market share right now in a risky environment. Even if top line growth remains sluggish—net interest income grew an anaemic 5% yoy in the September quarter—the bank would be able to protect its margins which contracted slightly to 3.77%. That the SBI stock tanked close to 4% on Friday was not surprising, as the results were decidedly poor. More importantly, though, analysts would be wondering how the management got it so horribly wrong. For its part, the SBI management would do well to remember that downplaying downsides to the business can be risky; it can cost you not just market capitalisation but also your reputation. That’s something the country’s top bank needs to be careful about.