homefinance NewsSBI's Dinesh Khara addresses pension, DA relief impact on Q3 profit, anticipates Q4 wage hike spillover
SBI's Dinesh Khara addresses pension, DA relief impact on Q3 profit, anticipates Q4 wage hike spillover
SBI Chairman Dinesh Khara, in an exclusive interview with CNBC-TV18, delved into the key factors influencing the bank's performance in the third quarter of the financial year 2023-24. Khara highlighted various aspects, including profit impacts, the consequences of wage hikes, a slowdown in deposit growth, Net Interest Margin (NIM) pressure, loan growth, unsecured loans, and the outlook on asset quality.
Discussing the 35.5% year-on-year decline in SBI's standalone net profit for Q3, Khara explained that a one-time exceptional item of ₹7,100 crore significantly affected the figures, resulting in a net profit of ₹9,163 crore. This exceptional item covered estimated pension liabilities at a uniform rate of 50%, along with additional provisions for ex-gratia benefits related to Dearness Allowance (DA) neutralization. Khara expressed confidence in meeting this liability, having fully provisioned for it and allocating the increase to a fund designated for future pension obligations.
Regarding salary and wage increases, Khara noted that provisions for this have been raised from 10% to 14%, potentially escalating to 17% with MOUs between unions and banks. SBI has already allocated ₹6,100 crore in Q3 for anticipated wage hikes, and an additional ₹5,400 crore provision may be required in Q4.
Khara addressed the 35.5% year-on-year decline in SBI's standalone net profit for Q3, revealing that the one-time exceptional item of ₹7,100 crore impacted the figures, resulting in a net profit of ₹9,163 crore.
Under this exceptional item, ₹5400 crore covered the estimated pension liabilities at the uniform rate of 50%, and an additional ₹1,700 crore for ex-gratia benefits related to Dearness Allowance (DA) neutralisation.
He revealed that the bank had made full provisions for pension and Dearness Allowance (DA) relief in Q3, stemming from the resolution of a longstanding court case.
Noting disparities in pension rates — some employees received 40% while others received 50% — Khara highlighted the importance of establishing a uniform pension rate of 50%.
The Chairman expressed confidence in the bank's ability to meet this liability, fully provisioning for it and crediting the increase to a fund designated for future pension liabilities.
Regarding the increase in salary and wages, Khara mentioned that provisions made for this have been raised from 10% to 14%, and with MOUs between unions and banks, this might escalate to 17%.
SBI has already provided ₹6,100 crore in Q3 for the anticipated wage hikes, and an additional ₹5,400 crore provision may be required in Q4.
On deposit growth slowdown, Khara assured that SBI is well-placed on deposits, with a CD ratio of 66%, and a Loan to Credit Ratio (LCR) of 130%.
Despite a slowdown in deposit growth, he highlighted that the bank's CASA (Current Account Savings Account) has remained relatively stable, with a drop lower than some competitors.
Addressing Net Interest Margin (NIM) pressure, Khara stated that the majority of interest rate increases occurred on the term deposit side, with only a small amount left for repricing.
He expects an additional 2-3 basis points impact on NIMs.
Meanwhile, the whole bank's net interest margin (NIM) for the first nine months of financial year 2023-24 decreased by 1 basis point on-year to 3.28% while domestic NIM for 9MFY24 decreased by 8 bps YoY to 3.41%.
Speaking further, SBI said that it remains on track to meet its loan growth guidance of 14-16% for FY24.
The lender's Chairman emphasised the focus on the quality of loans underwritten, aiming to maintain credit costs at 0.25%.
The bank holds a pipeline of ₹4.6 trillion in corporate loans, with significant private sector participation.
The Chairman further anticipates continued growth in the unsecured loan book, stating that SBI has no concerns about its unsecured loan portfolio.
He highlighted that regulator concerns were primarily directed at players with a large number of low-value unsecured loans, which is not the case for SBI.
Moreover, he provided insights into the asset quality outlook, mentioning that the bank has already recovered ₹900 crore out of ₹4,960 crore of fresh slippages in the quarter. He acknowledged the need to restructure one SME account due to weakness but expressed confidence in maintaining credit costs at current levels.
Responding to questions about SBI's association with Paytm, Khara clarified that SBI does not have tie-ups with Paytm and only maintains Paytm's settlement account.
He assured that Paytm's issues would have no impact on the bank, and SBI would consider how to service customers affected by Paytm Payments Bank without contemplating any acquisition.
In conclusion, Khara emphasised the importance of avoiding contagion effects in the financial sector, urging caution in partnerships to ensure governance and risk management.
He highlighted the need to respect regulatory prescriptions in the tightly regulated financial sector.
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