SBI JUNE 2012 Quarter Reveal HIdden NPA And Indicate Health of Other Banks

Bad loans back to bite SBI

Its 137% increase in net profit for the June quarter from a year ago fails to mask the problems it is facing

Collected from LIVE MINT

http://www.livemint.com/2012/08/10235048/Bad-loans-back-to-bite-SBI.html

State Bank of India’s (SBI’s) 137% increase in net profit for the June quarter from a year ago fails to mask the problems it is facing. Stressed loans are piling up for the bank even as it is slowing down on the operational side.

The June quarter numbers show that the good performance for the three months ended March may have been a temporary blip. In the June quarter, fresh slippages into bad loans totalled some Rs.10,844 crore, nearly double what the bank had guided for.

Adjusting for upgrades, SBI added Rs.7,480 crore to its gross non-performing assets (NPAs). That compares with a Rs.421 crore drop in March andRs.6,000 crore-odd additions in the previous couple of quarters.

                                                   

That means the bank’s gross NPAs, as a proportion of its total loan book, are 4.99%, the highest in at least eight quarters. On the brighter side, SBI recast loans worth only Rs.564 crore in the June quarter, about one-tenth of what it had in the three months ended March. But then look at the overall stressed asset position (i.e., gross NPAs plus recast loans). The June numbers are 60% more than those of March, reflecting continued pressures.

Sandeep Bhatnagar/Mint

The bank seems to think that the bad loans situation should ease soon. Its loan loss provisions for June are the same as a year ago, when asset quality was far more robust. In effect, it has sacrificed provision cover to boost its net profit numbers.

Perhaps it didn’t have much choice. Operationally, the numbers are reflecting a slowdown from the March quarter. Net interest income grew 14.63% from a year ago in the June quarter against 43.84% in March. This is the slowest in at least eight quarters. Non-interest income shrank 1% in June compared with an 11.66% increase in March. Within this category, too, fee income grew a measly 1.2% year-on-year in the June quarter from 13.5% in March. The net result was that operating profit growth slowed down to 12.9% in June, way below the 57.85% in the fourth quarter of last fiscal.

Even the industry-beating 20% increase in SBI’s loan book from a year ago has come at a cost. The bank’s yield on advances declined 19 basis points sequentially, while its cost of deposits rose 29 basis points. As a result, net interest margin fell to 3.57% in June, down 18 basis points from a quarter ago. A basis point is 0.01%.

Also note that the fastest growing category in the loan book was farm debt, which grew 25.85% from a year ago. This is also a category that is seeing a fair amount of slippages, especially with a drought looming.

The outlook for SBI is sombre. With economic indicators showing that the economic downturn has not bottomed out, it is hard to see how India’s largest bank will fare any better.

What I feel is given below

Result for the Quarter ended June 2012 announced by the largest state run bank called State Bank of India is now out and the result is enough to point out in what direction SBI is moving and what is the hidden truth of other smaller banks coming under public sector. When the result of largest bank is deteriorating quarter after quarter, what will be the fate of other banks, one can imagine. Those who are highly positive minded, they can still imagine of good future. Result is given in brief below.

SBI's non-performing assets (NPA) rose sharply to 4.99 percent as on June 30, 2012 raising concerns over the bank's asset quality. The bank's gross non-performing assets were at 3.52 percent at the end of the first quarter of 2011-12 financial year.

At the end of the last financial year bank's non-performing assets was 4.44 percent.

Increase in non-performing loans led to a sharp drop in the company's share price. Share price of SBI slumped by 4.03 percent to Rs.1, 892.45 at the Bombay Stock Exchange (BSE) after the announcement of the first quarter financial results.

For me at least, result announced by SBI is not astonishing. Person like O P Bhatt and CEOs of other big banks enjoyed a lot during their tenure as Bank head and befooled the regulating agencies. After their retirement from their respective banks only, the bitter truth is slowly coming out on the surface. Similar type growth in bad assets is reported by other top banks which were considered as leading banks in the corridor of MOF and RBI when their CEO were preaching sermons to others and offering costly gifts on all inaugural functions. Gross NPA of SBI has reached the level of 5% and very soon it will touch the level of 10% and more and there is no doubt to me that other banks will also follow the suit as soon as they fully expose the hidden bad assets.

It is ridiculous that the reason for rise in NPA given by chief of the bank is adverse monsoon and global recession. Bad monsoon likely to be this year or global recession likely to affect economy this year cannot affect the repayment of loans given to SME sector five to ten years ago. As a matter of fact all hidden NPA is slowly coming out and in any case none of existing bad asset is due to bad monsoon or draught or due to global recession.

In the past CEO of all state run banks cheated with MOF, RBI, Investors and the customers by concealing bad assets, by making inadequate provision for bad assets  by  reducing provisions on even terminal benefits like pension and gratuity and finally  by inflating profits and distributing dividends to Government of India and investors .Fraud and manipulation are deep rooted in officials sitted on top post and concocting false story of progress and development is not unusual in India.

Even Government of India talking of fiscal crisis does not hesitate in allowing large scale waiver of loan, subsidy to rich corporate and now free mobiles to attract voters in the fold of Congress party.