SBI Q4 net down 18.5% on higher provisioning - Daily News & Analysis

State Bank of India (SBI), the country's largest lender, spooked a stock market that had already tanked on negative global cues on Thursday, by reporting an 18.5% on-year drop in standalone net profit to Rs 3,299 crore in the fourth (January-March) quarter of last fiscal. SBI's first quarterly net profit drop in two years was due to higher provisioning for bad loans and fall in interest margins, and was much deeper than the 7% on-year fall expected by the market. In response, market-people hammered the stock which plunged over 7% to close at Rs 2,176.20 on BSE. On a sequential basis, SBI's January-March net profit declined 2.9%. Provisions rose 33.1% to Rs 4,181 crore, while provisions for non-performing assets or NPAs went up 40.1% to Rs 3,974 crore. SBI restructured Rs 8,090 crore in loans in the March quarter, far higher than its earlier guidance of Rs 3,700 crore. "Provisioning requirement on substandard and doubtful category increased sub stantially. During the quarter, pressure on asset quality continued though the decline as measured in terms of more assets falling into the substandard category somehow got arrested. With this, the results were a mixed bag," said Pratip Choudhuri, SBI chairman. Henceforth, SBI will invest in only high-quality stocks which have good trading volumes and less volatility. Provision on standard assets, however, fell as Rs 15,000 crore of restructured loans moved back to standard assets, while some teaser loans went back to contracted rates. With higher provisioning, the coverage ratio improved from a low 61% in the December quarter to 66.58% during the March quarter, though on-year it dropped from 68.10% . The bank raised its provision for salaries by 15% providing Rs 720 crore for the proposed wage revision for which negotiations are on, and will be effective retrospectively from November. Provision towards pension, however, dropped as earlier the p ension contribution was coming from the profit and loss account but now it is being adjusted against the income from the contribution. This, however, had some negative impact on net interest income which was down 4.42% at Rs 11,078 crore as the bank stopped receiving interest income for pension funds that have now been moved into the Pension Fund Trust. Margins were another area of disappointment with domestic net interest margin at 3.66% against bank's own guidance of 3.70-3.75%. Margins fell as average cost of deposits rose 34 basis points (bps) on-year to 6.29% while yield on advances fell 51 bps on-year to 10.54%. "A large part of margin compression is due to accounting for pension. In the previous year, pension money was treated as interest-free and the money was deployed in lending operations giving the bank a higher net interest margin. This year, we have moved the pension money into pension fund. The fund has its own economics and investment return (expectations) and the fund did not participate in the net interest margin of the bank," Chaudhuri said. On Thursday, the chairman guided for a net interest margin of 3.66%. Operating expenses went up 20% on-year due to an 18% rise in staff cost and a 24% increase in overhead expenses. The bank's gross NPAs fell to Rs 51,189 crore as at March-end from Rs 53,458 crore a quarter ago, but was up from Rs 39,676 crore a year ago. The gross NPA ratio as on March 31 jumped to 4.75% from 4.44% a year ago, but improved sequentially from 5.30% on December 31. Net NPA ratio rose to 2.10% from 1.82% a year ago, but sequentially was an improvement from 2.59%. Fresh slippages during the quarter stood at Rs 5,868 crore, write-offs at Rs 2,418 crore and upgradations at Rs 4,586 crore. The bank restructured loans worth Rs 8,669 crore during the quarter, including NPAs worth Rs 572 crore. Choudhuri said the bank expects to restructure up to Rs 6,000 crore o f loans in the next 3-4 months. "Even if we take below investment grade accounts, those will be backed by enough collateral security," he said. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGsjX_YPZNUbEoXOqhIB98rbk_hTA&url=http://www.dnaindia.com/money/1838706/report-sbi-q4-net-down-18-5pct-on-higher-provisioning

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