State Bank of India (SBI), the country’s largest bank, posted a quarterly loss for the first time in nearly 19 years — of Rs 24.16 billion in the December quarter of 2017-18 — owing to a sizeable increase in provisioning for bad loans.
This came after the Reserve Bank of India (RBI) asked the lender to reclassify some corporate loans as non-performing assets (NPAs).
The net loss came as a surprise, given that the street was expecting the bank to post a net profit of Rs 19 billion, as predicted by a Bloomberg poll of analysts. The bank also provided for mark-to-market losses worth Rs 34 billion on its investment portfolio.
The operating performance was also slightly lower than the expectations of analysts.
The last time SBI reported a quarterly loss was in January-March 1999. Terming it a disappointing quarter, SBI Chairman Rajnish Kumar said the bottom line was hit by lower trading income due to a hardening of bond yields, leading to a significant depreciation in the bank's investment portfolio.
The yield on 10-year government securities increased by 67 basis point from 6.66 per cent on September 29, 2017, to 7.33 per cent on December 29, 2017.
On average, yields were up 45 bps sequentially. Bond prices vary inversely as the rate of interest. On a standalone basis, the bank's net profit was Rs 26.10 billion in the year-ago period. However, the year-on-year performance is not comparable because SBI has merged its associates and banking subsidiaries with itself effective April 1, 2017.
The bigger hit, however, came because the RBI mandated a reclassification of some corporate loans. After completing its annual financial inspection for FY17, the banking regulator asked SBI to reclassify some loans as NPAs for the year ended March 2017. The bank had treated them as stressed loans.
The divergence between NPAs assessed by the RBI and SBI’s own assessment made for a difference of more than Rs 230 billion and the burden of provisioning for this was more than Rs 60 billion.
SBI is planning to raise about Rs 200 billion in the next financial year (2018-19) to support credit growth. Chairman Rajnish Kumar said this amount was other than what the government would provide as capital. The bank does not need capital to provision for its stressed loans. SBI will sign a memorandum of understanding with the government on this.