State Bank of India (SBI) reported an 8.03% year-on-year rise in net profit to Rs 14,330.02 crore for the quarter ended September on the back of lower provisions and a strong rise in its net interest income (NII). 

The bank’s operating profit fell 8.07% year-on-year to Rs 19,417 crore in the fiscal second quarter ended September 2023. This was mainly due to a higher provision for a proposed wage hike (about 14%) and pension provisions.

NII and NIM

NII, the difference between interest earned and interest expended, rose 12.27% year-on-year to Rs 39,500 crore. Sequentially, it fell by 1.53%.  

Net interest margin, a key indicator of the bank’s profitability, was down by 12 basis points year-on-year to 3.43% in Q2FY24. Sequentially, it fell from 3.47% in Q1FY24.  

The repricing of deposits pushed the cost of funds and impacted the NIMs. “We expect the NIMs to stay at current levels,” SBI chairman Dinesh Khara said. 

“On a year-on-year basis, the cumulative domestic NIM has actually improved from 3.39% to 3.45%. This is essentially attributed to the increased loan book and better yield on advances," he added.

Asset Quality

The bank’s asset quality improved, with the gross non-performing asset (NPA) ratio declining to 2.55% as of September-end, from 2.76% a quarter ago and 3.52% a year ago.

Net NPA for the quarter stood at 0.64%, improving from 0.80% a year ago and 0.71% a quarter ago..

The slippage ratio rose by 13 basis points to 0.46% as of September 2023, from 0.33% a year ago. But sequentially it was down from 0.94% in June 2023.

The bank has a written-off book of Rs 178,523 crore which it calls the Auca (accounts under collection) where recovery efforts are on but it does not reflect on its books.

Provisions

Provision coverage ratio (PCR) at 75.45% declined by 248 bps YoY.

The provision coverage ratio (PCR) for NPAs improved to 91.93% in September 2023 from 91.54% a year ago.

Loan Growth

The bank’s gross advances rose 12.39% year-on-year to Rs 34.11 trillion in Q2FY24. The domestic retail loan book grew 15.68% year-on-year and corporate loans expanded by 6.62%.  The lending to SMEs grew by 23%.

The bank expects its loan book to grow by 13-14% and retail by 15-16% in FY24. The corporate credit worth Rs 1.5 trillion is awaiting disbursements. 

Khara said the unsecured loan book was not a concern for the country’s largest lender. “The 86% of unsecured credit is to those who have salary accounts with us. It is a robust loan book and is not a concern for us,” he added.

The outstanding unsecured credit stood at Rs 3.03 trillion.

Deposits

Total deposits grew 11.91% year-on-year to Rs 46.89 trillion. The share of low-cost CASA (current account and savings accounts) deposits declined to 41.88% as of September-end, from 44.63% a year ago.

CAR

The capital adequacy ratio stood at 14.28% with common equity tier I (CET1) at 9.94% at the end of September 2023.

The capital base is adequate to support credit growth of Rs 6.5 trillion. 

The retained profits for FY24 will increase the capital adequacy ratio beyond 15%, Khara said.