SBI Q1: Conclusions SBI Q1: Sharp reduction in SMA-2 loans pleases investors

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MAMBAY: Today reported higher-than-expected earnings for the quarter ended June, boosted by higher trading profit and interest-free transactions.

An annual reduction in reserves of nearly 20 percent also helped the lender increase its net profit by 55 percent year over year to Rs 6,504 crore. However, the lender’s net interest income rose at a modest rate of 3.7 percent year on year to Rs 26,642 crore in the reporting quarter.

However, here are the key takeaways from another quarter of the country’s largest lender’s stellar income:

Sharp reduction in SMA-2 loans says all is well

Ahead of the reporting season for the June quarter, most investors were worried about the health of banks’ loan portfolios after the devastating second wave of the pandemic in the country and the resumption of quarantines.

However, SBIInternal indicators showed that the bank is in much better shape than the asset quality assessment project at the forefront. SMA-2 accounts, loans overdue by more than 60 days but less than 90 days, fell to Rs 3,326 crores in the quarter from Rs 6,843 crores in the March quarter.

The decline in SMA-2 loans suggests that the threat to asset quality in the medium term is much lower than investors expected.

Second wave hits asset quality

However, SBI did feel the impact of the second wave of the pandemic on its asset quality, as gross non-performing assets rose to 5.32% from 4.98% in the previous quarter.

The bank saw a sharp rise in SMA-1 credit accounts during the quarter, likely because borrowers decided to defer EMI payments during the peak of the Covid-19 outbreak to cover other contingencies. SMA-1 accounts or loans that are more than 30 days overdue but less than 60 days late rose to Rs 7,977 from Rs 4,676 in the previous quarter.

Housing, consumer credit trend

While SBI’s overall lending growth was modest at 5.6%, the bank posted robust growth in its home and personal loans despite the disruptions caused by the second wave.

Retail loans rose 16.5% year-on-year in the June quarter, indicating that individuals are increasingly relying on borrowed funds for purchases. In the retail lending category, gold loans rose more than 300% this quarter compared to the same period last year, reflecting the current stress on household income.

At the same time, home loans rose 11% year on year, reflecting the demand for housing in the country.

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