State Bank of India posted a record loss in the fourth quarter as the provisions doubled, however, the country's largest lender sees better days ahead. With much of the recognition of non-performing assets completed, the insolvency and bankruptcy process involving large NPAs ongoing and the bank also looking at monetising value in subsidiaries, chairman Rajnish Kumar says, the current financial year ending March 2019 could well be the year of hope followed by a year of happiness.
“Last three years have been very challenging, but what you are seeing today is a much stronger SBI, than what it was two years ago. The IBC resolution process, of which we are now starting to see the benefits, gives me great hope that with the RBI framework of stressed assets resolution, and risk governance architecture, which has been strengthened in the bank, we are poised for growth now in a risk mitigated manner,” said Kumar on Tuesday.
The biggest challenge facing Indian banks is the huge number of NPAs. In June 2017, the Reserve Bank of India released a first list of 12 large NPAs, which constituted a quarter of total NPAs in the system, to be resolved under the new IBC process. That was followed by a second list of smaller NPAs
SBI has an exposure worth Rs 49,000 crore in the first list of NPAs and a further Rs 28,000 crore in the second list. Bhushan Steel, which was among the 12 large NPAs, was acquired by Tata Steel for around Rs 36,000 crore through the IBC process last week, helping banks recover almost the entire principal loan amount. This has given hope to banks in several other large NPA accounts, which are also in advanced stages of getting resolved.
SBI has provisioned for 56 per cent for its share in the first list of NPAs, but Kumar is hopeful that the losses will lessen than that and it would be able to recover at least 50 per cent of the total amount. For the second list of NPAs, it has presently provisioned for around 75 per cent, but hopes that the losses will be far lesser and recoveries would be higher.
On the back of higher provisioning for NPAs, higher provisioning on account of wage revision and enhancement in gratuity ceiling, lower trading income and significant mark-to-market (MTM) losses due to hardening of bond yields, the state-owned lender reported a record net loss of Rs 7,718 crore in January-March, versus a loss of Rs 3,442 crore in the quarter a year ago.
Net interest income declined 5 per cent year-on-year to Rs 19,974 crore.
Its gross NPAs stood at 10.91 per cent at the end of March 31, 2018, versus 10.35 per cent at the end of December 2017, while net NPAs were at 5.73 per cent, up from 5.61 per cent.
By March 2020, it expects the gross NPAs to fall under 6 per cent, while net NPAs to be lower than 2.3 per cent.
For FY19, SBI has targeted a credit growth of 10 per cent, which should further increase to 12 per cent (compounded growth) in FY20, while deposit growth is targeted at around 9 per cent this year.
“As I said, last year was a year of despair, this is a year of hope and next year (FY20) will be a year of happiness,” said Kumar.
In the last financial year, SBI sold stake in its Life Insurance unit through an Rs 8,400 crore initial public offering. It further sees opportunities to unlock value in subsidiaries.
“This year, we will be looking at bringing in a partner in SBI Capital Markets, with 24 per cent to 49 per cent stake. Other subsidiaries like SBI Cards, SBI Asset Management and SBI General Insurance, they are being readied for the next year,” said Kumar.
It is also seeing retail segment “firing on all cylinders” and that is expected to remain a strong focus going ahead too.
SBI is also consolidating its overseas operations, with a re-look at some of the unviable operations. It is in the process of closing its Paris office and converting it into a representative office. On the other hand, in Nepal, where its subsidiary is doing well, it will look to further expand. It will also look to improve the presence of its subsidiary in the UK, which currently has a balance sheet close to $2 billion.
Despite the huge losses, SBI shares closed 3.7 per cent higher at Rs 254.15 on Tuesday as investors took hope from the lender's positive outlook. Analysts, also say that, while the street had expected a loss for the quarter, the feeling is that the worst may be over for the lender.