|Big bank, bigger NPAs|
|Tuesday, 14 February 2012 08:45|
SBI doesn't do as well as peers, stuns on NPA rise
Great efforts on SBI’s part ensured that, despite the rise in interest rates and a slowing economy, India’s largest bank still managed to increase its net interest margin by 26 bps sequentially—indeed, the growth in interest expended by SBI was amongst the lowest among its peers. Apart from that, however, there is little to cheer and the 15.3% hike in its net profit was higher than HDFC Bank’s 13.4% but lower than ICICI Bank’s 20.3%. Were it not for the fact that SBI made R693 crore of treasury profits, as compared to a loss of R50 crore in Q2, SBI’s profits in the December quarter would have been lower. SBI’s advances rose 17.5% in comparison with HDFC Bank’s 22% and ICICI Bank’s 19%. In the case of NPAs, however, SBI beat its peers—its gross NPAs rose 71% while HDFC Bank’s rose just 13% and ICICI Bank’s actually fell 4.6%. Punjab National Bank’s NPAs also rose, but by a lower 42%. SBI’s rising NPAs—Kingfisher alone accounted for R1,400 crore and agriculture R770 crore—resulted in loan loss provisioning rising 84% in the December quarter and its Tier-I capital falling significantly, from 8.52% in December 2010 to 7.59% in December 2011, making it imperative that the government move quickly to recapitalise it. It was delays in this that ensured Moody’s downgraded SBI last October.
How the future pans out depends on many things, and it is tempting to believe the worst may be over for SBI, thanks to its mammoth provisioning this time around. A fall in interest rates will certainly help stem the rise of NPAs, as will an upswing in the economy, no matter how small. That, however, is in the medium term. In the short run, there are the airline NPAs that have to be contended with, and until a decision is taken on whether the government will underwrite Air India’s loans, NPAs in this segment are likely to rise—SBI, however, insists there will be no writedowns on this account. Restructuring of power sector loans has not yet gathered pace, and it is useful to keep in mind Crisil’s estimate that R58,000 crore of power loans are at risk if policy action is not taken in the next 18 months. The is a similar lack of clarity on telecom loans—while SBI has said it has limited exposure to 2G loans to new firms, it is not clear whether any refunds will be given for the 122 licences cancelled. The future of the dual technology licences as well as those given during 2003 and 2008 is also unclear, and the government’s stand on declaring intra-circle roaming on 3G illegal can cause problems. In the long run, the problem remains what it has been for a long time, of PSU banks needing around R4 lakh crore over the next five years to maintain capital adequacy norms, and the government not having the money to provide this.