SBI: nasty reality check to growth recovery dreams


The economy’s weak health is holding back its financiers and worse, not letting their old wounds heal quickly either. That is the sobering message from the quarterly results of the country’s largest lender, State Bank of India (SBI).

SBI reported a loss of Rs2,416 crore for the December quarter, its first ever as a stand-alone entity. The largest lender reported fresh slippages of a staggering Rs25,836 crore, taking it back to its arguably weakest quarter of December 2016.

The slippages soared also because the lender and the regulator had a difference of opinion over what assets should be labelled bad.

The divergence in bad loans in SBI’s case was a colossal Rs23,239 crore that made its fiscal year 2017 (FY17) look uglier than before. About 19% of this divergence has been upgraded since then, the management said. The rest are languishing as non-performing assets.

In a nutshell, existing defaulters are barely showing signs of getting healthy while new borrowers have also begun defaulting.

Consequently, SBI had to make higher provisions, which it did. The resultant total loan loss provisioning of Rs17,760 crore dragged the lender into a loss.

Considering the dreary loan market, interest income was bound to be low but there was no help from non-interest income either. Hostile bond markets hit SBI’s portfolio and it had to take a mark-to-market hit of Rs3,400 crore.

It gets worse.

Despite the year-ago period being hit by demonetization, SBI’s loan book grew by an embarrassing 2.88%. If one adds its investments into corporate bonds and commercial papers, the growth picks up to 4.18%. This goes against the emerging narrative that loan growth is finally picking up.

All this now brings us to the key question: will it get better from here?

While the SBI management sounded sanguine on future asset quality and loan growth, it was far from convincing.

Chairman Rajnish Kumar said that one cannot be overly optimistic about the next quarter. However, he added that FY19 would be far better, of course with the helping hand of the government’s initiatives announced in the budget.

SBI is pinning all its hopes on a friendly resolution of the bad loan pile referred to the courts under the Insolvency and Bankruptcy Code. The lender’s exposure is roughly Rs78,000 crore and it has provided for 60% of the amount. If it stares at larger haircuts from court rulings, SBI will get hit further.

After the cliffhanger final quarter for the current fiscal year, clarity will emerge on the resolution as deadlines are after April. For the sake of SBI and the economy, the resolution process should not leave them nursing fresh wounds.livemint