India's largest bank's profit spikes thanks to SBI Cards share sale⁠— bad loans are under control

• India's largest bank, the State Bank of India, posted a profit jump of 315% in the fourth quarter as compared to same quarter last year.
• Much of profit comes from the sale of its stake in its subsidiaries, SBI Life Insurance and SBI Cards and Payment Services.
• SBI's share price was up by more than 6% after its earnings were announced.

India’s largest bank, the State Bank of India (SBI), posted a profit of ₹3,480.81 crore for the fourth quartered ending on 31 March 2020 — a jump of more than four times compared to its profit from the same quarter last year at ₹838.40 crore. “This is the highest ever yearly net profit recorded by the bank,” said SBI.

Much of the profit comes from the bank shedding its stake in its subsidiaries. SBI earned ₹3,843.40 crore from selling its investment in SBI Life Insurance in Q2 FY 20 and ₹2,731 crore from sale of stake in SBI Cards and Payment Services.

The good news for investors is that the government-owned bank has managed to keep bad loans under check. However, the shares had already rallied in the hope of a strong set of numbers from SBI. Once the earnings were out, the bank's share price was up by more than 6%.


Despite a standstill on ₹23,25,285 crore loans⁠— due to a government mandate on dues that couldn’t be collected due to the coronavirus lockdown ⁠— the gross non-performing assets (NPA) was ₹1,49,091 crore, about 6.15% of the total loan book.

“Exposure to severely stressed sectors by COIVD 19 is less than 4.0% of the book,” said the bank’s management. Home loans, which make up for 22% of SBI’s domestic advances, grew by 13.86% year-on-year (YoY).


Provision coverage ratio
Ahead of the earnings, Credit Suisse had expected SBI’s growth to slow and its credit costs to rise this year and the next financial year. Selling some of its stake in insurance could partly offset SBI’s capital needs. “SBI’s stake sale in its insurance subsidiaries, to 30%, can cover 50% of its capital call,” the report said.

And that could unlock some value for its shareholders.


However, it still expected growth to be severely hampered, with expectations of GDP turning negative. “We believe there is a potential risk of sharply declining asset quality in both the corporate as well as individual segments of loan books,” said Credit Suisse.