SBI piles on profit and provision with cash from selling stake in insurance business⁠— bad loans drop

SBI profit jumps by 81% in Q1FY21BCCL

  • The State Bank of India’s (SBI) first-quarter profit is up by 81% year-on-year.
  • The bank announced that it has increased its provisions for COVID related accounts by another ₹1,863 crore.
  • The share of bad loans in its kitty have also reduced with the ratio of non-performing assets (NPAs) coming down over the last three months.
India’s largest lender, the State Bank of India (SBI) continues to soar through the green with a 81% yearly jump in profits, partially aided by its stake sale in its life insurance arm — SBI Life Insurance — for ₹1,539.73.

MetricAmountGrowth (YoY)
Net interest income (NII)₹ 26,641 crore16%
Net profit₹ 4,189.3481%
Net interest margin (NIM)3.24%+23 basis points

The stock was up over 3.4% in trade when the latest quarterly earnings were released.

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SBI's share price over the last three monthsBSE/BI India

Three months ago, SBI reported a 315% jump in its profits — the highest ever yearly net profit clocked by the bank — after it earned ₹3,843.40 from selling its investment in SBI Life Insurance and ₹2,731 crore from its sale of stake in SBI Cards.

SBI's net profit over the last five quartersCompany filings/BI India

The number of bad loans with the bank also showed a dip with gross non-performing asset (GNPA) ratio dipping by 71 basis points to 5.44% between April to June. One hundred basis points make one percent.

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GNPA and NNPA ratios for SBI over the last five quartersCompany filings/BI India

That being said, SBI has still set aside an additional ₹1,863 crore this quarter as provision for COVID related accounts bringing the total provisions for COVID impacts to ₹ 3,008 crore. Overall, the bank’s provision coverage ratio stands at 86.32%, which indicates the percentage of loans that the bank can currently afford to cover.

SBI isn’t worried about bad loans — believes recoveries will start happening by September
SBI’s chairman, Rajnish Kumar, believes that this is the best time for SBI to take risks. He’s not worried about its bad loans either and doesn’t want the Reserve Bank of India’s moratorium to extend beyond August.

Out of ₹ 42,000 crore net NPA, the corporate book accounts for ₹ 10,500 crore, which is just 50% of SBI’s quarterly profit. “So we can easily get rid of our corporate loan book and bring it to zero,” Kumar said during the earnings call.
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According to him, most of the corporates will be in a position to start paying back their loans in September. “We believe that they are reserving cash,” said Kumar.

When it comes to the ₹32,000 crore of retail loans, the chairman explained that the numbers aren’t unlike what one would see during pre-COVID times. Even recovery for those loans is likely to start moving by September. “Even if, over the next seven quarters, we continue to provide ₹ 5000-6000 crore, it becomes zero,” Kumar said.

SEE ALSO:
ICICI Bank's gross bad loans drop to the lowest in 5 years

The fall in ICICI Bank shares reflects the market’s dislike of banking stocks this week

Aditya Puri sells most of his stake in HDFC Bank for ₹843 crore
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