State Bank of India (SBI), the country’s largest lender by assets, reported a 35.5% drop in its net profit for the quarter ended December 2023, as it set aside more funds for pension liabilities. The bank’s net profit stood at Rs 9,164 crore, compared to Rs 14,205 crore in the same period of the previous year. This was lower than the average estimate of Rs 13,300 crore by 15 analysts surveyed.
The bank’s net interest income, or the difference between interest earned and interest expended, rose by 4.6% to Rs 39,816 crore, slightly below the consensus estimate of Rs 40,000 crore. The net interest margin, or the measure of profitability, declined by 28 basis points to 3.34%, from 3.62% in the previous quarter.
The bank’s asset quality improved, as the gross non-performing asset (NPA) ratio fell to 2.42%, from 2.67% in the previous quarter. The net NPA ratio also declined to 0.64%, from 0.79% in the previous quarter. However, the bank’s fresh slippages, or new bad loans, increased by 30% to Rs 49,600 crore, from Rs 38,200 crore in the previous quarter.
Pension Provision Weighs on Profitability
The main reason for the sharp decline in the bank’s net profit was the higher provision for pension liabilities, which amounted to Rs 7,100 crore. This was due to the revision in the wage structure and the increase in the dearness allowance for the bank’s employees, as per the 11th bipartite settlement.
The bank’s chairman, Dinesh Khara, said that the pension provision was a one-time expense, and that the bank would benefit from the wage revision in the long run. He also said that the bank had made adequate provisions for the potential impact of the COVID-19 pandemic, which had affected the bank’s operations and customers.
The bank’s total provisions, including those for bad loans, stood at Rs 13,413 crore, compared to Rs 10,342 crore in the same period of the previous year. The bank’s provision coverage ratio, or the percentage of bad loans covered by provisions, was at 74.17%, slightly lower than 76.12% in the previous year.
Credit Growth Remains Robust
Despite the challenges posed by the pandemic, the bank’s credit growth remained robust, as it expanded by 14.38% year-on-year, to Rs 25.07 lakh crore. The bank’s retail advances, or loans to individuals, grew by 15.28%, while the corporate loans, or loans to businesses, grew by 10.71%.
The bank’s deposits, or the funds collected from customers, also grew by 13.02% year-on-year, to Rs 37.23 lakh crore. The bank’s current account and savings account (CASA) deposits, or the low-cost deposits, grew by 4.48%, while the term deposits, or the fixed deposits, grew by 18.01%.
The bank’s CASA ratio, or the percentage of CASA deposits to total deposits, was at 41.18%, slightly lower than 41.53% in the previous year. The bank’s capital adequacy ratio, or the measure of financial strength, was at 13.05%, compared to 14.28% in the previous quarter.
Outlook and Challenges
The bank’s management expressed confidence in the bank’s performance and outlook, as the economy recovers from the pandemic. The bank expects to maintain its credit growth at around 15%, and its net interest margin at around 3.3%. The bank also expects to improve its asset quality and reduce its slippages and NPAs.
However, the bank also faces some challenges, such as the uncertainty over the recovery of the stressed sectors, such as aviation, hospitality, and real estate. The bank also faces the risk of higher bad loans, as the Supreme Court’s moratorium on the recognition of NPAs ends. The bank also faces the competition from the private sector banks and the fintech players, who are offering innovative and digital products and services.
