State Bank of India’s fiscal first quarter net profit took a 6.7% dip over the year-ago period as treasury loss stood at Rs 6,549 crore.

Net profit fell to Rs 6,068 crore for the quarter ended 30 June 2022 from Rs 6,504 crore a year earlier. Other income, which includes fee income, earnings from foreign exchange and derivative transactions and profit or loss on sale or revaluation of investments, fell 80% to Rs 2,312 crore from Rs 11,803 crore a year ago.

“Most of the provisions can be written back in the second quarter. The bank has conducted a sensitivity analysis of the investment book and we have provided for losses if the yields were to rise to 7.45%. Additional provisions will be necessary only if yields cross this level. Considering inflation and the strength of the currency, yields are unlikely to move into these territories,” SBI chairman Dinesh Khara told reporters.

Khara is hopeful that the bank will be able to write back part of the mark-to-market (MTM) provisions in the subsequent quarters. “If the 10-year yield stays where it is now at around 7.3%, we will be able to write back about Rs 1,900 crore. If it rises to 7.5%, then the bank will have to provide for another Rs 2,000 crore to Rs 3,000 crore. But with inflation softening and currency strengthening, we do not expect a sharp jump in yields,” he said. 

SBI’s domestic investment book was Rs 14,93,371 crore at the end of the first quarter.Of this, government bonds was Rs 12,02,179 crore.

The 10-year bond had risen to 7.50% in June, the highest in more than three years. It has since eased to 7.30%. On 5 August, the Reserve Bank of India (RBI) hiked the benchmark repo rate by 50 basis points to 5.4%, the third increase since 4 May. 

Outside the treasury losses, SBI saw a robust 15% growth in its loan book led by retail credit. Gross advances climbed to Rs 29,00,636 crore. While domestic corporate loans grew 11%  to Rs 8,74,014 crore from Rs 7,90,494 crore, retail loans rose 18.5% to Rs 10,34,111 crore. 

On the corporate side, advances to petroleum and petrochemical companies grew the highest at 39.84% to Rs 44,437 crore. Loans to the aviation sector grew by 33.52% to Rs 13,117 crore. The bank said loans to the telecommunications sector  grew by 26% to Rs 39,701 crore.

The bank’s home loan book was the biggest segment with outstandings standing at Rs 5,75,075 crore, up 13.77%.  According to the bank, its market share in home loans is 33.3% and auto loans is 19.3%, The outstanding auto loans of the bank was at Rs 82,012 crore, up 10.45%.

Khara expressed confidence of the bank maintaining a 15% growth in loans this fiscal as both retail as well as corporate loan demand is strong.

"We see no challenges on loan growth. Retail loan growth remains strong and we have a 49% underutilisation in working capital loans with 26% unutilised limits which amount to more than Rs 5 lakh crore. Retail is growing and capacity utilisation has improved to 75% with many companies now coming back to banks to borrow from the securities markets," Khara said.

Demand for loans is coming from sectors like power, roads, ports, petroleum and aviation, he added.

The bank’s interest income rose 10.85% year-on-year and 2.75% quarter-on-quarter to Rs 72,676 crore. The net interest income, which is interest income earned on loans minus interest expenses for deposits, also posted double-digit growth (12.87%) to Rs 31,196 crore. 

The domestic net interest margin (NIM) during the first quarter ended 30 June 2022 improved by 8 basis points YoY to 3.23%. A higher NIM means the bank is earning more profits from its assets (loans and advances).

The bank in a statement said that the MTM losses had an adverse impact on the bank’s return on assets and return on equities, which stand at 0.48% and 10.09%, respectively. The other income of the bank fell sharply by over 80% to Rs 2,312.20 crore. The main reason for the steep fall was the treasury loss of over Rs 6,549 crore. 

The provisions of the bank declined to Rs 4,392.38 crore from Rs 10,051.96 crore in the same period of the previous year. Of this, provisions for non-performing assets (NPAs) was down  to Rs 4,268.13 crore from Rs 5,029.79 crore. 

Asset quality improved with the percentage of gross NPAs standing at 3.91%  against 3.97%  on a sequential basis. The gross NPAs in absolute terms stood at Rs 1,13,271.72 crore against Rs 1,34,259.48 crore in the corresponding quarter of the previous year. 

However, slippages rose to Rs 9,740 crore from Rs 2,845 crore in March 2022. Slippage ratio fell to 1.38% in June 2022 from 1.47% a year ago. SBI has an enabling provision to raise Rs 11,000 crore by selling bonds this fiscal.

The bank does not see any challenge to its asset quality from the retail and corporate book. The total restructured book of the bank was Rs 28,785 crore.

At the end of the reporting quarter, the bank’s balance sheet crossed Rs 50 lakh crore and capital adequacy ratio stood at 13.43%.