homeearnings NewsSBI Q2: New bad loan addition, restructured accounts will not exceed 2.5% of book in FY21
SBI Q2: New bad loan addition, restructured accounts will not exceed 2.5% of book in FY21
SBI has found that even in the worst case scenario, its total slippages and restructuring at end of FY21 would not exceed Rs 60,000 crore.
State Bank of India's (SBI's) second quarter earnings give a glimmer of hope to the industry, which feared the worst in the aftermath of the COVID-19 pandemic. In its assessment, SBI found that even in the worst case scenario, its total slippages and restructuring at end of FY21 would not exceed Rs 60,000 crore.
The amount may look huge at first, but considering the size of SBI's book -- Rs 23,83,624 crore of advances at the end of September 2020 – the number comes to about 2.5 percent. This implies that total bad loans addition in the year, added with loans that are likely to be restructured because they’re under stress only amounts to 2.5 percent, which is much lower than what the industry expected.
Even Reserve Bank of India (RBI) in its last financial stability report had indicated that the banking sector stress may rise by 4-6 percentage points in this fiscal due to the COVID-19 pandemic. Therefore, a bank like SBI, the country's largest, representing a quarter of the entire banking system, estimating its bad loans at half of what RBI had projected will certainly bring cheer to the sector.
How SBI arrived at the Rs 60,000 crore figure?
The bank's new bad loan addition, or slippages stood at Rs 6,393 crore for the first half of the year. The additional pro forma slippages in the second quarter stood at Rs 14,388 crore, which could not be tagged as NPA due to the Supreme Court's order dated September 3, 2020. Given the run rate of Rs 10,000 crore of slippages each quarter, the bank estimates that it will add another Rs 20,000 crore of bad loans in the second half of the year.
The restructured book, which represents stressed loans, are kept in the standard category. SBI said it received requests to restructure Rs 6,495 crore loans as of October and expects approximately Rs 13,000 crore of restructuring requests to come through by the end of the year.
This takes the total to around Rs 60,000 crore of slippages and restructuring, assuming the worst case scenario.
For the second quarter, the bank reported an improvement in asset quality, with fresh slippages of only Rs 2,756 crore, thanks to the dispensation relief from the Supreme Court. Its gross non-performing asset (NPA) ratio declined to 5.3 percent from 5.4 percent in the first quarter of the year, and net NPA fell to 1.6 percent from 1.9 percent in Q1. The bank expects credit cost to remain below 2 percent for the full year, Chairman Dinesh Khara told CNBC-TV18.
Khara said the bank's assessment indicates an upward movement in all categories of the economy. "Borrowers are telling us their businesses are reaching pre-COVID levels," he said. The bank reported an improvement in collection efficiency to 97 percent, even as it said that retail segment credit growth has returned since the peak lockdown period. "We had estimated 7 percent credit growth for the year earlier, but given the improvement in economic environment, we expect credit growth at 8-9 percent for FY21 now," Khara said.
First Published: Nov 4, 2020 6:33 PM IST
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