SBI: Focus on retail to help in times of slowdown

State Bank of India’s numbers for the quarter to June were below analysts' estimates on all counts barring loan growth. In the June quarter, SBI’s loan assets grew 16%, slightly higher than the industry growth of 14%, mainly due to its focus on retail and mid-corporate lending.

Home and auto loans, which form a major part of retail lending, grew 18% and 39%, respectively.

The focus on retail lending is expected to help the bank grow its loan book marginally better than the industry in the next few quarters. Besides, the country’s largest bank is likely to maintain its net interest margin, or NIM, in the coming quarters due to the high percentage of current account and savings account (CASA) deposits, which constitute 45% of the total deposits now.

This implies that the bank’s cost of funds may rise marginally in case of higher short-term rates. The current slowdown has affected SBI’s asset quality, just like its state-owned peers. Fresh slippages during the quarter rose a sharp 27% y-o-y to Rs 13,700 crore, taking the bank’s gross NPAs to 5.56% of total assets from 5.15% a year ago.

While this was marginally higher than expected, a lower provision this year led to a higher net NPA. SBI’s net NPA now stands at 2.83%, the highest in the past ten quarters.

However, lower restructured assets were a comforting factor for the bank this quarter. It restructured loans worth Rs 4,384 crore in the June quarter, nearly half of what it did in the March quarter.

Assuming no up-gradation from the restructured account, SBI’s net NPAs plus restructured accounts constitutes 7.2% of total loan assets. This is relatively healthy compared with other public sector banks, whose 10% of assets fall in the category.