India’s largest bank reported a 14% profit increase and its lowest bad loan ratio in more than 20 years. But a ₹7,288 crore one-time gain from a stake sale did much of the work. Excluding it, underlying profit was considerably weaker, and investors sold the shares.
State Bank of India reported standalone net profit of ₹23,038 crore for the September quarter, up 14.3% from ₹20,160 crore a year earlier. Net interest income rose 14.7% to ₹49,143 crore. For the first half, profit was ₹44,159 crore.
Asset quality was the best in more than two decades. Gross NPAs fell to 1.39% and net NPAs to 0.36%. Provision coverage was 74.43%. Credit cost, the share of loans written off or provided for, fell to 0.22% from 0.39% a year ago. Provisions dropped to ₹4,217 crore from ₹5,400 crore.
The capital position is strong: a capital adequacy ratio of 16.09% and a core equity ratio of 13.34%. Half-year return on equity was 18.68%, above SBI’s 15% target, and return on assets was 1.14%.
The one-time gain
The headline profit includes a significant one-time item. SBI’s profit before tax of ₹30,009 crore includes an exceptional gain of ₹7,288 crore, reported to come from a stake sale.
Without that gain, profit before tax would have been about ₹22,720 crore. After tax, by our rough estimate, that would mean core profit of around ₹17,000 crore, below the ₹20,160 crore SBI earned a year ago. In other words, on an underlying basis SBI’s profit fell this quarter. The one-time gain turned that into a 14% increase.
The other factor was treasury income. SBI holds a large portfolio of government bonds. When the RBI raised rates in October and bond yields rose, the value of those bonds fell, and SBI booked losses on them. Reports pointed to treasury losses as a key concern for investors. This is a risk for all banks in a period of rising rates, and SBI is the most exposed because of the size of its bond holdings.
Shares fell
SBI’s shares fell after the results. Reports differed on the size of the drop, with one presentation summary saying the stock fell as much as 5% to the bottom of its 52-week range. Despite the strong asset quality and capital figures, investors focused on the one-time gain and the treasury losses.
SBI’s listed subsidiaries performed well. SBI Card reported a profit increase of about 75%, helped by sharply lower credit losses. SBI Life also grew profit.
Indian banking picks up
SBI’s results reflect what is happening across Indian banks this season. Bad loans are at multi-decade lows, capital is strong and returns are high. But core income growth is slowing as deposit costs rise and margins narrow, and banks are relying more on one-time items such as recoveries, treasury gains and stake sales to report strong headline profits.
Bank of Baroda’s other income nearly doubled last week. SBI’s results included a ₹7,288 crore exceptional gain.
While asset quality is excellent, it means headline profit growth in banking is likely to slow once these one-time items are no longer there to support it.
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