Friday, August 24, 2012

Back to square one on NPAs




    M.V.S. SANTOSH KUMAR
    BL RESEARCH BUREAU
    11 Aug 2012



State Bank of India during the June quarter couldn’t replicate its March quarter performance which was driven by recovery in non-performing assets (NPA) and improved margins. As a consequence, SBI’s stock lost 4 per cent despite witnessing a 137 per cent growth in net profit.
The year-on-year profit growth in the June quarter was driven by mark-to-market gains, lower operating expenses and strong growth in advances. However, the declines in net interest margin both from a year ago and sequentially and huge rise in gross NPAs played the spoil sport.
The rise in bad loans during this quarter was disproportionately high. The net slippages for SBI was around Rs 7,500 crore, as against Rs 9,727 crore for all other listed banks. The gross NPA ratio of SBI was 4.99 per cent as compared to 2.6 per cent for all other banks.
The SME (small and medium enterprise) and mid-corporate advances continued to witness additional slippages. These two segments accounted for two-thirds of fresh slippages during the June quarter. Agriculture advances also saw higher slippages but the management expects improved prospects with the pick-up in monsoon.
Around 9.2 per cent of mid-corporate advances, 9.8 per cent of agriculture advances and 7.7 per cent of SME advances are now non-performing as of June 2012.
Much of the slippages were in the infrastructure, engineering, textiles, trading, and iron and steel sectors. Interestingly, most of these troubled sectors also figure in the top in the SBI’s restructured loan portfolio. The bank resorted to loan restructuring only to the extent of Rs 564 core, and it continues to have amongst the lowest restructuring advances proportion in the public sector bank space.

MARGINS DECLINE

NPA pressure has also led to reversal of income recognised, leading to pressure on yield on advances and as a consequence on net interest margin. Slight decline in low-cost deposit proportion and the rise in cost of funds (term deposits) have also led to margin declines. The compression would have been higher if not for higher core capital, CRR cut and high credit-deposit ratio.
The credit-deposit ratio improved by 1.5 percentage points to 76.4 per cent from a year ago. Going forward, the management is guiding a margin of 3.75 per cent which is achievable in spite of a cut in lending rates in recent times. For one, credit may pick up which could give higher yields for the bank. The SLR cut may also help as it is increasingly looking towards commercial papers for investments.
The bank also plans to increase its focus on retail loans. Given its aggressive pricing and lowest cost of funds, it may improve its market share in this category.
Increased direct lending to agriculture is another focus area. Even here, SBI is looking to lend against gold which would reduce the credit risk. Improved agriculture credit would also prevent it from having to invest in the rural infrastructure development fund.

Deccan Chronicle owes lenders over Rs 3,270 cr?






15 AUG, 2012, 05.55AM IST, TNN 


HYDERABAD: Troubled Deccan Chronicle Holdings(DCHL) has outstanding dues of well over Rs 3,270 crore that it owes to nearly 28 banks, financial institutions and non-banking financial institutions, according to details that emerged at a joint meeting ofDCHL lenders held in Mumbai on August 8.

These outstanding dues are understood to be by way of term loans, commercial papers and non-convertible debentures ranging from Rs 490 crore to Rs 10 crore. The meeting, which was chaired by Axis Bankpresident Sidharth Rath, is learnt to have been attended by representatives of IDFC, ICICI Bank, LIC,Yes Bank, Central Bank of India, Tata Capital, HDFC Bank, IFCI and Ratnakar Bank.

According to sources, DCHL lenders are mulling the possibility of forming a five-member committee of senior lenders, based on outstanding dues, to represent the interest of lenders and negotiate the recovery of their dues with the DCHL promoters. The lenders are also planning to hold a meeting with DCHL promoters and Religare representatives in a bid to pressurize them to share updates on the sale of assets of DCHL and Deccan Chargers.

According to sources, the lenders discussed various alternatives by which they could recover their outstanding dues from the DCHL promoters.

These include unlocking the value of Deccan Chargers and DCHL brands and selling off their assets before there is a further deterioration in their value, private placement of pledged shares, approaching the ministry of finance or Company Law Board for a change in management of DCHL, and actions for change of management of DCHL through the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI).

The lenders are also learnt to be exploring the possibility of sharing details of collaterals available with them and taking ajoint decision for sale of the collateral in addition to asking DCHL promoters to sell their unencumbered assets/collaterals on behalf of banks and then utilize the sales proceeds to recover dues on a pre-agreed sharing ratio basis.

From the discussions held at the meeting, it is also learnt that while some banks and DCHL promoters have already approached various media groups with offers to purchase the assets of DCHL, a prompt decision for acquisition was unlikely as these media groups were interested in unencumbered assets and may get DCHL assets at a much lesser value with the passage of time.

The company's scrip, meanwhile, continued its downward journey, hitting yet another lifetime low of Rs 10.55 a share on the Bombay Stock Exchange on Tuesday.

While DCHL promoters owe ICICI Bank Rs 490 crore, they have dues of Rs 400 crore with Axis Bank, Rs 330 crore with Canara Bank, Rs 200 crore with Andhra Bank,Rs 175 crore with Yes Bank, Rs 170 crore with Future Capital Holdings (now the loan has been acquired by Kishore Biyani) and Rs 145 crore due to IDFC.

Selling mortgaged land: Bank questions court's intervention




TNN | Aug 15, 2012, 05.12AM IST


KOCHI: Housing Development Finance Corporation Ltd (HDFC) on Tuesday approached the high court challenging interference of courts in the rights granted to banks under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 (SARFAESI Act).

SARFAESI Act enables banks to take over mortgage land pledged by debtors without having to approach the court. According to HDFC, they are entitled to take possession and sell mortgaged properties to realize debts from borrowers.

In the petition filed through advocate C P Saji, HDFC is challenging an order by the chief judicial magistrate court of Kottayam asking loan defaulters to appear for hearing. The notices under challenge were issued by the magistrate court when HDFC approached the court for assistance in taking over possession of the assets as stipulated in SARFAESI Act.

According to HDFC, the magistrate is only invoking his ministerial power when they approached for assistance and issuing notice is against the Act and various judgments of the Supreme Courtand the high court as there is no trial or adjudication specified in SARFAESI Act.

Serving of notice by the magistrate court serves no purpose as there is no adjudicatory process involved. Further, such an act would cause delay in taking over possession of land of the defaulters, HDFC contends.

Willful defaulters face ban on loans



TNN | Aug 18, 2012, 12.59AM IST

 The government is asking banks and financial institutions to prevent willful defaulters from floating new ventures for at least six years by choking the flow of funds, especially long-term capital. 

Even auditors of these companies, who are seen to be negligent, could face action with the finance ministry suggesting that lenders lodge complaints with the Institute of Chartered Accountants of India (ICAI), the regulator for the profession. 

The suggestions come at a time when there has been spurt in bad debt of banks with gross NPAsas a percentage of loans rising to 3.5% at the end of June 2012 from 2.6% a year ago. During this period, private sector players, both new and old generation banks, had witnessed a decline in the proportion of gross NPAs. 



Within the public sector fraternity, which accounts for around 70% of the total banking business, Bank of Maharashtra and Dena Bank witnessed a decline in NPAs, but at least five lenders — Central Bank of India, State Bank of Mysore, State Bank of India, Union Bank of India and IDBI Bank — saw an increase of at least one percentage point. For SBI, gross NPAs accounted for over 5% of the loans given by it. Apart from action against willful defaulters, the government has also suggested better monitoring and more stringent recovery.

Thursday, August 23, 2012

Over 49 lakh debtors defaulted Rs1 lakh crore of PSU banks





MDT/PTI | 05/07/2012 06:28 PM | Money life

There are 969 debtors who defaulted in repaying loans over Rs10 crore each, adding up to around Rs27,000 crore of the Rs1 lakh crore total defaults of nationalised banks

Thane: Over 49 lakh debtors have defaulted in repaying loans totalling more than Rs1 lakh crore from various nationalised banks in the country, an RTI query has revealed, reports PTI.

The information was provided by individual banks to Om Prakash Sharma, an RTI activist and a former National Council member of BJP.

The State Bank of India tops the list accounting for 32% of the total defaulted amount and 36.3% of the defaulters.

A compilation of the information received indicated that the debtors numbered 49.2 lakh and the defaulted amount was to the tune of Rs1.0 lakh crore.

The State Bank of India has a total of 17.9 lakh defaulters and the amount involved is Rs32,534 crores.

Punjab National Bank stands second with Rs9,632 crores in default, accounting for 0.1% of the total defaulted amount, followed by Union Bank of India where the debtors have not repaid Rs7,615 crore.

As regards the number of defaulters, Union Bank of India comes second with a total of 5.50 lakh defaulters followed by Bank of India which has 3.43 lakh defaulters.

There are six banks where the defaulted amount is between Rs3,000 and Rs4,000 crore, four banks where it is between Rs2,000 and Rs3,000 crore, seven where default is between Rs1,000 and Rs2,000 crore and three with less than Rs1,000 crore.

It was revealed that there were 969 debtors who defaulted in repaying loans over Rs10 crore each, adding up to around Rs27,000 crore.

The State Bank of India has 370 Non-Performing Assets, while Bank of India has 139 andUnion Bank of India 93.

Rajoo @ Ramakant vs State Of M.P. (Supreme Court- 09.08.2012 )


NEW DELHI: The Supreme Court has ruled that free assistance must be provided to all poor accused, irrespective of the severity of the crime attributed to them, at every stage of the three-tier justice delivery system and could not be restricted to the trial stage only.
“We are of the opinion that neither the Constitution not the Legal Services Authority Act makes any distinction between a trial and an appeal for the purpose of providing free legal aid to an accused or person in custody,” a bench of Justices A K Patnaik and Madan Lokur said. The bench ordered fresh hearing of appeal of one Rajoo, whose conviction in a gang rape case was upheld by the Madhya Pradesh High Court even though there was no legal assistance provided to the accused in the appeal stage. He had got free legal aid during the trial proceedings. Justice Lokur, writing the judgment for the bench, said when the Supreme Court Legal Services Committee provided assistance to eligible persons in the apex court, how could there be a bar on providing free legal aid to accused in the high courts. “It is important to note that Section 12 and 13 of the Legal Services Authorities Act do not make any distinction between the trial stage and the appellate stage for providing legal services. In other words, an eligible person is entitled to legal services at any stage of the proceedings which he or she is prosecuting or defending,” the bench said.
It disagreed with earlier judgments which hinted at carving out exceptions for providing free legal assistance to accused facing trial in economic offences or offences against law prohibiting prostitution or child abuse. “We have some reservation whether such exceptions can be carved out particularly keeping in mind the constitutional mandate and the universally accepted principle that a person is presumed innocent until proven guilty,” the bench said.
“If such exceptions are accepted, there may be a tendency to add some more, such as in cases of terrorism, thereby diluting the constitutional mandate and fundamental right guaranteed under Article 21 of the Constitution,” it said. The bench said it was obligatory for every court, from trial court to the Supreme Court, to inquire whether the accused or convict required legal representation at the government’s expense so as not to deprive the person a “fair trial or hearing”.
The Court in its Judgement discussed  the scheme of institutional machinery , various court orders and the legislation enacted for   legal aid in the country. The Judgement content is as follows:
Constitutional and statutory provisions :
By the 42nd Amendment to the Constitution, effected in 1977, Article 39-A was inserted. This Article provides for free legal aid by suitable legislation or schemes or in any other manner, to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities. Article 39-A of the Constitution reads as follows:- 39A. Equal justice and free legal aid. – The State shall secure that the operation of the legal system promotes justice, on a basis of equal opportunity, and shall, in particular, provide free legal aid, by suitable legislation or schemes or in any other way, to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities.
Subsequently, with the intention of providing free legal aid, the Central Government resolved (on 26th September, 1980) and appointed the “Committee for Implementing the Legal Aid Schemes”. This committee was to monitor and implement legal aid programs on a uniform basis throughout the country in fulfillment of the constitutional mandate. Experience gained from a review of the working of the committee eventually led to the enactment of the Legal Services Authorities Act, 1987 (for short, the Act).
The Act provides, inter alia for the constitution of a National Legal Services Authority, a Supreme Court Legal Services Committee, State Legal Services Authorities as well as Taluk Legal Services Committees. Section 12 of the Act lays down the criteria for providing legal services. It provides, inter alia, that every person who has to file or defend a case shall be entitled to legal services, if he or she is in custody. Section 13 of the Act provides that persons meeting the criteria laid down in Section 12 of the Act will be entitled to legal services provided the concerned authority is satisfied that such person has a prima facie case to prosecute or defend.
It is important to note in this context that Sections 12 and 13 of the Act do not make any distinction between the trial stage and the appellate stage for providing legal services. In other words, an eligible person is entitled to legal services at any stage of the proceedings which he or she is prosecuting or defending. In fact the Supreme Court Legal Services Committee provides legal assistance to eligible persons in this Court. This makes it abundantly clear that legal services shall be provided to an eligible person at all stages of the proceedings, trial as well as appellate. It is also important to note that in view of the constitutional mandate of Article 39-A, legal services or legal aid is provided to an eligible person free of cost.
Decisions of this Court :
Pending the enactment of the Legal Services Authorities Act, the issue of providing free legal services or free legal aid or free legal representation (all terms being understood as synonymous) came up for consideration before this Court.
Among the first few decisions in this regard is Hussainara Khatoon (IV) v. Home Secretary, State of Bihar, (1980) 1 SCC 98. In that case, reference was made to Article 39-A of the Constitution and it was held that free legal service is an inalienable element of “reasonable, fair and just procedure for a person accused of an offence and it must be held implicit in the guarantee of Article 21 [of the Constitution].” It was noted that this is “a constitutional right of every accused person who is unable to engage a lawyer and secure free legal services on account of reasons such as poverty, indigence or incommunicado situation.” It was held that the State is under a mandate to provide a lawyer to an accused person if the circumstances of the case and the needs of justice so require, subject of course to the accused person not objecting to the providing of a lawyer.
The essence of this decision was followed in Khatri (II) v. State of Bihar, (1981) 1 SCC 627. In that case, it was noted that the Judicial Magistrate did not provide legal representation to the accused persons because they did not ask for it. This was found to be unacceptable. This Court went further and held that it was the obligation of the Judicial Magistrate before whom the accused were produced to inform them of their entitlement to legal representation at State cost. In this context, it was observed that the right to free legal services would be illusory unless the Magistrate or the Sessions Judge before whom the accused is produced informs him of this right. It would also make a mockery of legal aid if it were to be left to a poor, ignorant and illiterate accused to ask for free legal services thereby rendering the constitutional mandate a mere paper promise.
Suk Das v. Union Territory of Arunachal Pradesh, (1986) 2 SCC 401 reiterated the requirement of providing free and adequate legal representation to an indigent person and a person accused of an offence. In that case, it was reiterated that an accused need not ask for legal assistance – the Court dealing with the case is obliged to inform him or her of the entitlement to free legal aid. This Court observed that it was now “settled law that free legal assistance at State cost is a fundamental right of a person accused of an offence which may involve jeopardy to his life or personal liberty and this fundamental right is implicit in the requirement of reasonable, fair and just procedure prescribed by Article 21 [of the Constitution].”
Since the requirements of law were not met in that case, and in the absence of the accused person being provided with legal representation at State cost, it was held that there was a violation of the fundamental right of the accused under Article 21 of the Constitution. The trial was held to be vitiated on account of a fatal constitutional infirmity and the conviction and sentence were set aside.
We propose to briefly digress and advert to certain observations made, both in Khatri (II) and Suk Das. In both cases, this Court carved out some exceptions in respect of grant of free legal aid to an accused person. It was observed that there “may be cases involving offences such as economic offences or offences against law prohibiting prostitution or child abuse and the like, where social justice may require that free legal services need not be provided by the State.” We have some reservations whether such exceptions can be carved out particularly keeping in mind the constitutional mandate and the universally accepted principle that a person is presumed innocent until proven guilty. If such exceptions are accepted, there may be a tendency to add some more, such as in cases of terrorism thereby diluting the constitutional mandate and the fundamental right guaranteed under Article 21 of the Constitution. However, we need not say anything more on this subject since the issue is not before us. The above discussion conclusively shows that this Court has taken a rather pro-active role in the matter of providing free legal assistance to persons accused of an offence or convicted of an offence. Another view:
A slightly different issue had recently arisen in Clark v. Registrar of the Manukau District Court, (2012) NZCA 193. The issue before the Court of Appeal in New Zealand was whether legally aided defendants in criminal proceedings are entitled to choose or prefer the counsel assigned to represent them. The discussion in that case centered round the New Zealand Bill of Rights Act, 1990 and the issue was answered in the negative. However, in the course of discussion, the Court observed that the right of a fair trial is guaranteed by the Bill of Rights Act and it is an absolute right. A fundamental feature of a fair
trial is a right to legal representation under the Bill of Rights Act. Reference was made to the decision of the Supreme Court of New Zealand in Condon v. R, (2006) NZSC 62 wherein it was concluded that representation by a lawyer is nearly always necessary for a trial for a serious offence to be fair. An accused person must have legal representation or at least should have been afforded a reasonable opportunity of attaining it when charged with a serious offence. But, the Supreme Court held that: “An accused has the right to employ a lawyer, but the state does not guarantee to provide the lawyer’s services – in this respect its role is passive, in the sense that it must not impede the exercise of the right by the accused. The exception is under s 24(f) [of the Bill of Rights Act], when the accused does not have sufficient means to provide for legal assistance. Even in such a case, however, it is the accused who must take the necessary steps to obtain assistance under the Legal Services Act.”
It was noted that the Supreme Court agreed with the High Court of Australia in Dietrich v. R, 1992 HCA 57 that, other than in exceptional circumstances, “an accused who conducts his or her own defence to a serious charge, without having declined or failed to exercise the right to legal representation, would not have had a fair trial.” A conviction obtained in such circumstances would be quashed unless the prosecution is able to satisfy the appellate Court that the trial was actually fair.
That there is a right of legal representation available to an accused is undoubted, even in New Zealand and Australia. The only point of disagreement appearing from Condon, as far as we are concerned, is whether the accused should be asked whether he or she requires legal assistance or not. The Supreme Court in New Zealand appears to have taken the view that the role of the State (and indeed of the Court) in this regard is passive. The view taken by this Court on issues of legal representation, on the other hand, is pro-active and an obligation is cast on the Court to enquire of the accused or convict whether he or she requires legal representation at State expense.
Conclusion:
Under the circumstances, we are of the opinion that neither the Constitution nor the Legal Services Authorities Act makes any distinction between a trial and an appeal for the purposes of providing free legal aid to an accused or a person in custody. We are also of the view that the High Court was under an obligation to enquire from Rajoo whether he required legal assistance and if he did, it should have been provided to him at State expense. However, since the record of the case does not indicate any such endeavour having been made by the High Court, this case ought to be re- heard by the High Court after providing Rajoo an opportunity of obtaining legal representation.

Are Indian banks heading for a crisis?


Hemant mishra/Mint

















livemint: Wed, Aug 22 2012. 1:15 AM IST

Banker’s Trust | Tamal Bandyopadhyay

A recent report by Credit Suisse Group AG pointed out that exposure to 10 large industrial groups constitutes 13% of the entire Indian banking system’s loan assets.

This means the concentration risk for the Indian banking system is rising. It’s not alarming if seen in isolation. If one looks at the other side of the story—the growing bad assets of banks—the system’s vulnerability becomes apparent.

The bad assets of Indian banks grew 46% in the fiscal year ended March 2012, nearly three times the pace of their loan books (17%). Add to this restructured assets and you know how grave the situation is.

As on 31 March, gross non-performing assets (NPAs) of the banking system amounted to Rs. 1.37 trillion and restructured assets Rs. 2.18 trillion.

If all restructured assets turn bad, then gross NPAs as a percentage of loans assets jump from 2.94% to 7.61%. This will not happen. By the Reserve Bank of India’s estimate, about 20% of restructured assets generally turn bad. If indeed that happens, the gross NPA ratio rises to 3.87%, and if 30% of the restructured assets turn bad, it reaches 4.34%.

This is bad news. There has been a secular decline in Indian banks’ bad assets since fiscal year 1997, when they amounted to 15.7% of loans. The percentage of bad assets declined to 2.4% in 2008. Since then, it has been rising—to 2.45% in 2009, 2.51% in 2010, and 2.94% in 2012.

In absolute terms, banks’ bad assets have doubled in three years between 2009 and 2012—from Rs. 68,216 crore to Rs. 1.37 trillion. During this period, the quantum of restructured assets has nearly trebled, from Rs. 75,946 crore to Rs. 2.18 trillion.

And both the bad assets as well as the restructured assets rose even further in the June quarter. I don’t have the restructured asset figures. The gross NPAs of listed banks rose from Rs. 1.32 trillion in March to Rs. 1.49 trillion in June. This means that for the entire industry, gross NPAs would have crossed Rs. 1.5 trillion, as this figure does not include the bad assets of unlisted private banks and foreign banks.
In percentage terms, at least four banks now have more than 4% gross NPAs, led by the nation’s largest lender State Bank of India (4.99%, Rs. 47,156 crore, up from 3.52% and Rs. 27,768 crore a year ago).

Bad assets in the coal, iron and steel, mining, construction, textiles and aviation sectors have been on the rise. Bankers are seeing stress in telecom and power sectors, too, but the gross NPA level in these two sectors is around 0.5% only. This means the bad assets of Indian banks can rise further as banks have hefty exposures to telecom and power, and neither of these sectors is in the best of health at this point in time.

The biggest beneficiaries of loan restructuring are large industrial houses in the manufacturing sector—8.24% of loans given to industries have been recast. In the services sector, the comparable figure is 3.99%, and in agriculture loans, 1.45%.

This makes it clear that small borrowers affected by the economic slowdown have not got a respite from loan servicing, but the large industrial houses have gotten one. It’s a win-win situation for both borrowers and banks; banks need to set aside very little money for restructured loans, and to that extent their profitability is not hit by provisions needed for bad loans.

Indeed, net NPAs, or bad assets after provisions, are not very high. At end-June, for listed banks they were close to Rs. 72,000 crore, and only one bank (Central Bank of India) had more than 3% net NPAs.
But this is small consolation. As banks need to set aside money to bring down their net NPAs, the growth in their capital gets stunted and that affects their ability to expand loan assets. Besides, as they need to provide for bad assets to bring them down, their ability to price their loans competitively also gets affected.

Public sector banks account for about 70% of the Indian banking industry, but when it comes to restructured assets, their share could be at least 90%. Consider these figures: while the entire banking industry has restructured 4.68% of loans till March 2012, public sector banks have recast 5.73% of their loans. The comparative figure for private banks is 1.61%, and foreign banks, 0.22%.
In the past three years, the restructured loans for public sector banks have grown at a compounded annual growth rate of close to 48% while their loan books have grown at 19.5%. For private banks, credit has grown at close to 20% while restructured loans have grown at 8.12%.

Why are public sector banks more vulnerable than their peers in the private sector? There are several reasons. Since many of them have large balance sheets, their ability to lend to different industries is more than that of most private banks. Their credit appraisal process seems to be weaker than their counterparts in the private sector; they do not pay market-related salaries and hence cannot attract people with the requisite expertise. Finally, when it comes to giving loans, they are also susceptible to pressure from politicians and bureaucrats.

Indeed, loan recasts are a global phenomenon, pioneered by the Bank of England through the so-called London Approach in the 1970s, which was later modified in the 1990s. The objective is prevention of liquidation of companies hurt by external developments, with the pain shared equally by the companies and their bankers.

But the Indian context is different. There is no bankruptcy law here and the banking system seems to be suffering more than the borrowers.


Tamal Bandyopadhyay keeps a close eye on all things banking from his perch asMint’s deputy managing editor in Mumbai.

Bad loans back to bite SBI





Livemint :Ravikrishnan:Sat, Aug 11 2012. 12:26 AM IST


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 and Rs.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.