SBI Q3 net profit dips 34% to Rs 2,234 cr

State Bank of India (SBI) on Friday posted a 34 percent decline in net profit at Rs 2,234.34 crore for the third quarter ended December 31, 2013 on account of higher provisioning for bad loans.

Mumbai: Country's largest bank SBI Friday reported a steep 34 percent fall in net profit to Rs 2,234 crore for the October-December period of 2013-14 due to rising asset quality stress, investment losses and hefty provisioning for pensions, and warned of "more pain" coming in.

Painting a grim picture of an elongated period of stress, State Bank of India (SBI) Chairperson Arundhati Bhattacharya said bulk of the stress on assets came from mid-corporate and SME segment.

"We need at least a couple of quarters of uptick in GDP for the asset quality to be better. I see more pain coming in," she said

The bank has decided to move the stress assets recovery branches that were reporting in the National Banking Group so as to have better focus and outcomes, she said.

"With that in mind we have now changed the structure and created four general managers- north, south, east, west, who will be reporting into the stress management group and will actually be owning these stress asset recovery branches in the circles," Bhattacharya said.

The bank's gross non-performing assets (NPA) ratio deteriorated to 5.73 percent as against 5.30 percent in the year-ago period, while provisions towards loan losses rose to Rs 3,428.59 crore from Rs 2,766 crore a year ago.

The core profitability gauge, net interest income, grew 13.10 percent to Rs 12,640 crore, while non-interest income rose to 4,190 crore from Rs 3,626.74 crore.

Analysts at Kotak Securities said the core earnings growth came below expectations due to reduction in the net interest margin (NIM), which dipped to 3.49 percent from 3.72 percent a year ago on a dip in yield on advances.

The SBI scrip ended 1.64 percent down at Rs 1,475.10 apiece on the BSE, whose 30-share benchmark gained 0.86 percent at the end of the session today.

The bank had Rs 11,000 crore in fresh slippages, including Rs 9,500 crore from SMEs and mid-corporates alone and added Rs 6,165 crore into the restructured book during the quarter, while a cleaning up of balance sheet resulted in a write-off of around Rs 5,000 crore, Bhattacharya said.

SBI has a restructuring pipeline of Rs 9,500 crore, all of which may not come in the fourth quarter, Bhattacharya said.

The gross NPA ratio in the mid-corporate segment grew to 11.39 percent from the preceding quarter's 10.21 percent, while the same for SMEs stood at 9.09 percent.

Bhattacharya hinted that the bank will be cautious while lending to these two troubled segments.

The bank continued its policy of providing Rs 600 crore per quarter for hike in pensions because of the revision in the life expectancy tables.

The Chairperson said it will definitely take a similar hit in the fourth quarter and then take a call on whether to continue with the practice.

Mark-to-market losses on its investment in government securities led to providing Rs 621 crore for investment depreciation, as against a write-back of Rs 129 crore in the year-ago period.

Chief Financial Officer D K Saraf termed the Rs 750-crore hit as one of the prime reasons for the drop in net profit.

The bank also had to provide Rs 234 crore towards the mandatory deferred tax liability (DTL).

The total capital adequacy stood at 11.59 percent as per the Basel-III framework. Saraf said it will increase to 13.27 percent if the bank included the Rs 2,000 crore in capital infusion and Rs 8,032 crore recapitalisation through the QIP issue in January.

Saraf said the bank is comfortable on the capital front for the next two years, while Bhattacharya said it will be needing Rs 70,000 crore more by 2018 as it migrates to the capital-intensive Basel-III framework.

The bank will have to support some of its associates with capital infusion in the fourth quarter, Saraf said, without specifying the associate bank or the number of banks.

SBI's share of the low-cost current and savings account deposits came down to 43.89 percent from 45.54 percent in the year-ago period.

The bank posted a year-to-date growth of 9.75 percent in advances, while the deposits were up 12.24 percent, including Rs 18,999 crore it raised through the special swap window. At 10.08 percent, retail advances showed a handsome growth.

Bhattacharya said the bank is not seeing great traction in loan demand in the fourth quarter, and will continue to focus on the retail front.