SBI posts 6.7% fall in Q1 profit as hardening yields lead to treasury losses

Mumbai: India’s largest lender State Bank of India (SBI) on Saturday reported a 6.7% year-over-year (yoy) decline in net profit from June to 6,068 crore due to mark-to-market (MTM) losses.

The bank witnessed MTM loss of 6,549 crore in the three months to June as bond yields hardened during the quarter. Banks hold large positions in government bonds, including government bonds (SDLs) and Treasury bills, as part of regulatory investment requirements. Therefore, any volatility in the bond market affects their income.

SBI has incurred such losses at the benchmark G-sec of 7.45% and therefore does not require additional provisions until then. The 10-year government bond, or G-sec, closed at 7.3% on Friday after the Reserve Bank of India’s repo rate hiked 50 basis points (bps).

“We did some calculations and if the Gsec yields go up to 7.75%, then we also have a component for the provision that is somewhere around the 2,000-3,000 crore depending on additional provisions that would be needed,” said Dinesh Khara, chairman of SBI.

Khara said if the yield reaches 7.5%, the bank should put aside another one 500 crores. Given that inflation is falling and the rupee is strengthening than before, he believes that interest rates are unlikely to reach those high levels.

“We are hopeful that we will be able to reverse some of these MTM provisions in the coming quarters. If the returns are 7.3%, we can write back on: 1,900 crore,” said Khara.

SBI’s net interest income – the difference between interest earned and interest – amounted to 31,196 crore in the first quarter, up 12.9% yoy but down 0.01% sequentially. The domestic interest margin, a measure of profitability, was 3.23%, 17 basis points (bps) lower than in the March quarter.

The bank’s gross non-performing assets (NPAs) as a percentage of total advances were 3.91%, down 6 bps sequentially and 41 bps from the same period last year.

“Fresh derailments for the quarter arose” 9,740 crore but we have almost withdrawn already 2,800 crore of total derailments. The constantly improving asset quality is also reflected in our cost of credit, which stood at 61 basis points for the quarter,” said Khara.

The bank expects to grow its loan portfolio by 15% in FY23. In the first quarter, SBI witnessed credit growth (including overdrafts from foreign offices) of 14.9% year-on-year (yoy) and deposit growth of 8.7% yoy. His balance crossed 50 trillion in the quarter

“We’re pretty comfortable supporting credit growth,” he said.

Without giving a specific target for deposit growth in FY23, Khara said SBI’s credit-to-deposit ratio is currently around 63% and the bank will see how best to allocate the funds without sacrificing margins.

“The rebound in economic momentum since January 2022 has remained strong. Credit growth has also picked up in the system, with double-digit growth in recent months. Against this background, I am pleased to announce that the bank has delivered fairly good results in terms of business, profitability and asset quality parameters,” said Khara.

SBI’s solvency ratio under Basel III standards was 13.43%, down 23 bps yoy.

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