SBI posts surprise loss in Q1 due to treasury losses

() reported a surprise 7% fall in net profit year on year due to a huge hit on the market value of the bank’s government bond investments as yields rose during the quarter.Net profit fell to Rs. 6,068 crore in the quarter ended June 2022 from Rs 6,504 crore a year earlier as the bank booked a Rs 6,549 crore loss on its investments due to the detoriation in value during the quarter. As a result, other income which includes fee income, earnings from foreign exchange and derivative transactions and profit or loss on sale or revaluation of investments, fell 80% to Rs 2312 crore from Rs 11,803 crore a year ago.

Chairman Dinesh Khara said the losses were marked to market (MTM) and booked when the benchmark ten year bond touched 7.45% during the quarter but since yields have softened since then, the bank does not require to recognise any more losses and may have to report gains in the current quarter.”If the 10 year yield stays where it is now at around 7.30% we will be able to write back Rs 1900 crore. If it rises to 7.75% we may have to make another Rs 2000 crore to Rs 3000 crore provisions. But with inflation on the way down and currency also strenghtening, we do not expect a sharp jump in yields,” Khara said.

The 10 year bond had risen to 7.50% in June, the highest in more than three years on fears that rising inflation will force the Reserve Bank of India (RBI) to hike rates. It has since eased to 7.30%. RBI increased its benchmark repo rate for third time within four months on Friday as it reiterated its commitment to bring inflation down below its outer limit of 6%.The large investment losses overshadowed an otherwise solid performance with a loan growth of 15% driven by a 19% growth in retail loans and a 11% increase in corporate loans.

Excluding the trading income and MTM losses, core operating profit increased by 14% to Rs. 19,302 cr. Net interest income (NII) or the difference between interest earned on loans and that paid for deposits increased 13% while net interest margins on domestic loans improved 8 basis points to 3.23%. One basis point is 0.01 percentage point.

Khara said the bank is confident of maintaining a 15% growth in loans this fiscal as both retail as well as corporate loan demand is strong.

“We see no challenges on loan growth. Retail loan growth remains strong and we have a 49% underutilisation in working capital loans with 26% unutilised limits which amount to more than Rs 5 lakh crore. Retail is growing and capacity utilisation has improved to 75% with many companies now coming back to banks to borrow from the securities markets,” Khara said adding that demand for loans is coming from sectors like power, roads, ports, petroleum and aviation.

The bank’s gross NPA ratio fell by 141 basis points to 3.91% and credit costs fell 18 basis points to 0.61% with provisions for NPAs down 15% to Rs 4268 crore from Rs 5030 crore. However, slippages increased to Rs 9700 crore in the quarter ended June 2022 from Rs 2845 crore in March 2022.

Khara said the rise in slippages is nothing to be alarmed about. “Out of the Rs 9700 cr that slipped Rs 2800 cr has already been pulled back. It is also lower than the Rs 15,666 cr reported a year earlier…..we are mindful our risks and rewards,” he said.

Slippage ratio fell to 1.38% in June 2022 fro. 1.47% a year ago. SBI has an enabling provision to raise a total of Rs 11,000 crore by selling bonds this fiscal.



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