Month: February 2021

State Bank of India reported a 7 per cent year-on-year decline in standalone third quarter net profit at ₹5,196 crore due to higher overall provisions and increase in employee expenses.

India’s largest lender had reported a net profit of ₹5,583 crore in the year ago quarter.

Though bad loan provisions came down 72 per cent yoy to ₹2,290 crore, the bottomline was weighed down by an increase in overall provisions, including for standard assets and Covid-related impact, and rise in employee expenses arising out of the 11th bipartite wage settlement. The loan portfolio showing signs of incipient stress (so-called special mention account/SMA) increased by ₹5,960 crore during the quarter to stand at ₹17,946 crore.

Chairman Dinesh Kumar Khara emphasised that his bank has put structures in place to pull back the SMA accounts.

Provisions

Khara said he is reasonably confident about the asset quality. The bank has a philosophy whereby it would like to provide for upfront even before the stress comes to the surface. “The moment we start having rumblings of stress, we try to provide for it,” he added.

Overall provisions, including for loan loss, standard assets, investment depreciation and other provisions, jumped about 43 per cent y-o-y to ₹10,342 crore. Employee expenses rose about 14.50 per cent y-o-y to ₹13,118 crore.

Net interest income (difference between interest earned and interest expended) nudged up 4 per cent to ₹28,820 crore. Total non-interest income, comprising fee income, profit/loss on sale of investments, forex income, recovery in advance under collection account, edged up about 1.5 per cent y-o-y to ₹9,246 crore.

The net interest margin (whole bank) declined to 3.12 per cent in the reporting quarter against 3.33 per cent in the year ago quarter.

Credit cost declined to 0.95 per cent against 1.80 per cent in the year ago quarter.

Bad loans decline

GNPAs declined to 4.77 per cent of gross advances as at December-end 2020 against 6.94 per cent as at December-end 2019. Net NPAs declined to 1.23 per cent of net advances as at December-end 2020 against 2.65 per cent as at December-end 2019.

With pro forma slippages (adjusted for the Supreme Court’s interim order on asset classification standstill), Gross and Net NPA ratio would have been 5.44 per cent and 1.81 per cent, respectively.

In the first nine months of FY21, the total pro forma slippages (₹16,461 crore) and restructuring requests received (₹18,125 crore) amounted to ₹41,216 crore. By the end of FY21, the bank has estimated that the total slippages and restructuring will not be more than ₹60,000 crore.

Business

Total deposits were up about 14 per cent y-o-y to ₹35,35,753 crore. Domestic current account deposits witnessed a growth of about 11 per cent, savings account (about 16 per cent), and term deposits (about 13 per cent).

Total advances increased about 7 per cent y-o-y to ₹24,56,607 crore, primarily driven by retail advances growth (about 15.50 per cent) and SME (about 6 per cent).

Khara said: “Corporate advances continue to witness a bit of subdued growth (about 2 per cent) but I hope that in the coming quarter and beyond that we will probably witness increase in these advances too. We have started seeing some kind of positive traction in the corporate advances, which I am sure will build up in the days to come.”

The SBI chief expects to end FY21 with a credit growth of about 7 per cent. From Q2FY22, SBI will be in a position to log double digit credit growth.

The proposed Asset Reconstruction Company (ARC)-Asset Management Company (AMC) structure for the resolution of stressed assets of banks will induce competition among ARCs, thereby shaking up the market, according to Dinesh Kumar Khara, Chairman, State Bank of India (SBI).

“I am sure other ARCs will…rise to the occasion and maybe they will also re-think their strategies,” he said. There are about 28 ARCs in the country.

In her Budget speech, Finance Minister Nirmala Sitharaman said an Asset Reconstruction Company Ltd and an Asset Management Company would be set up to consolidate and take over the existing stressed debt of banks and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realisation.

Khara said thanks to the Insolvency and Bankruptcy Code (IBC), there is an ecosystem which is available relating to the resolution of stressed assets – in terms of resolution professionals and operations & maintenance (O&M) agencies.

The SBI chief observed that when the existing set of ARCs came into existence, the aforementioned kind of ecosystem was not there. As a result, they were picking up the assets and holding on to them, leading to a situation where there was no circulation of money.

“So, I think, once this kind of ecosystem is available and they (ARCs) start taking advantage of the ecosystem and start churning the assets…this will go a long way in terms of salvaging the bad assets in the economy and probably channelise the precious capital in the economy,” explained Khara.

Challa Sreenivasulu Setty, Managing Director, SBI, said in terms of the modalities and mechanics of transfer of assets from banks to the proposed ARC, while the general principle of ₹500 crore and above is what has been indicated, banks are waiting for detailed guidelines to come from the Government of India before they can assess what kind of loans can be transferred.

Ashwani Bhatia, Managing Director, SBI, opined that the new ARC will free up a lot a capital for banks.

“The asset will first move to the ARC…then it moves to an AMC. The asset will be run by an O&M agency for a while and then when the time is ripe and the company is ripe to be sold off, at that time obviously private equity (firms), alternate investment funds and other players can enter and we do hope that the market also develops over a period of time,” said Bhatia.

The Enforcement Directorate (ED) has issued a provisional order attaching assets worth ₹14.45 croreof Gitanjali Group of companies and its director Mehul Choksi in the PNB bank fraud case. The attached assets are in the form of immovable properties comprising a flat measuring 1,460 sq.ft at O2 Tower, located at Goregaon, Mumbai, and movable assets in the form of gold, platinum jewellary, diamond stones, pearl-silver necklaces, watches, and Mercedes Benz car held in the name of Gitanjali Group of Companies and its director Mehul Choksi.

The ED had initiated investigation into the PNB scam against Mehul Choksi, Gitanjali Gems, and others under the provisions of PMLA, 2002 on the basis of FIR registered by Central Bureau of Investigation. It was alleged that Mehul Choksi, Gitanjali Gems, and others have committed the offence of cheating Punjab National Bank, in connivance with certain bank officials by fraudulently getting LoUs issued and got the FLCs (foreign letter of credit) enhanced without following the prescribed procedure and caused a wrongful loss to the bank.

During investigation under PMLA, it was revealed that PNB bank officials, in connivance with Mehul Choksi, Gitanjali Gems and others, originally issued FLCs for smaller amount within the sanctioned limit and, once the FLC number was generated, the same number was used for amendment by way of enhancement of FLC by way of increase in the amount. Such enhancement of amount was done at 4-5 times higher value of the original FLC amount and were done outside the CBS system and, hence, it was not captured in the books of bank. Further, it was also found that the branch was holding documents of original FLC amount and no import documents of such increased amount were found in the branch, and much of the fraudulent FLCs payments have gone to liquidate the overseas exporter’s liability arising out of earlier FLCs/discounting of bills

Earlier, the ED has already attached properties worth more than ₹2,550 crore, and now it has attached assets worth ₹14.45 crore of Gitanjali Group of Companies and its director Mehul Choksi.

Finance Minister Nirmala Sitharaman, on Thursday, urged India Inc to invest as the government alone cannot do this

“I hope the industry will understand the spirit with which the Budget is placed before you and therefore also come forward to participate in this inevitable exercise. Industry, having cleared all its debts and finances, should now be in a position to invest money to expand and grow and clearly show signs that it is now ready to receive any joint ventures for the sake of technology that it prefers to have,” she emphasised.

Her remarks come three days after the presentation of the Budget, which proposed over ₹5-lakh crore of capital expenditure during the current fiscal. She was addressing a meeting of industry chamber, the first after the Budget presentation.

Further, she stated that for providing immediate stimulus to the economy, the government will be spending in a big way in public infrastructure, and the three large areas where big-ticket expenditure will happen include infrastructure, health and agriculture. “Government alone, even if it brings bags full of money, cannot just meet the demand of the growing and aspirational India,” she said.

Speaking on the setting up of Development Financial Institutions (DFI), Sitharaman said that the government will enable one DFI and that the entire financing of long-term infrastructure will happen in a very market driven way. That itself will bring in efficiency, she added.

According to her, the government has taken a confident, trustworthy and transparent accounting statement in the Budget. “There is no patching up or white-washing. It has an honest attempt to give honest statement of the government’s finances and with the reforms announced along with the stimulus. It is clear that this government is not sitting cautiously, and it is coming forward with faith in Indian industry and business leaders,” added the Finance Minister.

She mentioned that the Budget mark a clear directional change for the Indian economy, and that directional change is not what the government has offered as a sudden response, but it was something that was preoccupying Indian minds for over 30 years.

She said that this Budget is trying to raise resources that are non-tax resources at a time when we need a lot of money to spend. “It’s a Budget which raises resources, but not on the back of increased taxation. There is a directional change in the Budget which is so distinct that it will fuel the entrepreneurial spirit which the Indians show given the right opportunities,” she added.