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State Bank of India (SBI), India’s biggest lender by assets, on Friday reported a net loss of Rs2,416 crore for the fiscal third quarter after setting aside funds to cover rising bad loans and losses on its bond portfolio.
• It had reported a net profit of Rs1,582 crore in the September quarter.
• In a post-results teleconference, in addition to provisions related to non-performing assets (NPAs), the bank kept aside Rs3,400 crore as a mark-to-market provision on account of rising bond yields. It also made a Rs700 crore provision for the next round of employee wage hikes.
• In the December quarter, yield on the 10-year benchmark government bond rose by 66 basis points. Banks have to revalue their bond portfolio at the end of every quarter. In case the value of the securities is lower than the market rate, they are mandated to keep aside funds as mark-to-market provisioning.
• The rise in bad loans was because of a Reserve Bank of India (RBI) review which revealed a divergence in reporting of gross NPAs based on fiscal 2017 results. Such divergence—the difference between RBI’s assessment and that reported by the lender—was around Rs23,239 crore at the end of March 2017.
• Of the divergence, loans worth Rs2,835 had already been recognized as NPAs in the June quarter, while Rs4,338 crore was upgraded to standard category later. The remaining amount was tagged as bad loans in the three months ending December. Accordingly, total slippages rose to Rs25,836 crore, compared with Rs9,026 crore in July-September.
• 90% of the slippages had already been recognized as stressed accounts and restructured under various RBI schemes.
• Gross NPAs as a percentage of total loans stood at 10.35% as on 31 December, up from 9.83% reported in the previous quarter.
• In the third quarter, SBI made a loan loss provision of Rs17,760 crore, as compared with Rs9,662 crore a year ago. Provision coverage ratio improved to 65.92% at the end of December, from 58.96% a year ago.
• SBI expects both loan slippage ratio and credit cost, or the percentage of provisioning against total advances, to be within 2% in the next fiscal. Currently, slippage ratio stands at 4.17% and credit cost at 3.18%.
• SBI clocked a year-on-year loan growth of 2.52%, supported by growth in retail products such as home and auto loans, and also by credit to small and medium enterprises. Outstanding loans as on 31 December stood at Rs19.24 trillion.
• SBI is targeting a loan growth of 10.3% in the next financial year. To support such growth, the bank plans to raise Rs20,000 crore in 2018-19.
A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained ‘past due’ for a specified period of time. In simple terms, an asset is tagged as non performing when it ceases to generate income for the lender.
With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for identification of NPA, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA)is a loan or an advance where:
• Interest and/or installment of principal remain overdue for a period of more than 91 days in respect of a term loan,
• The account remains ‘out of order’ for a period of more than 90 days, in respect of an Overdraft/Cash Credit (OD/CC),
• The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
• Interest and/or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and
• Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
• Non submission of Stock Statements for 3 Continuous Quarters in case of Cash Credit Facility.
• No active transactions in the account (Cash Credit/Over Draft/EPC/PCFC) for more than 91days.