Bank results Season: An excess provision for a working weekend SBI Q1 2012

Investors are fickle. After a $5 mln PAT performance to welcome the new Chairman Pratip Chaudhuri,

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SBI has actually grown to $395 mln quarter on quarter in Net Profits. Consolidated Net profits have even grown to more than $625 mln but the earnings report was pushed to the weekend and most reports and Friday trading did not seem to be expecting this much profit, concentrating on the year on year fall from INR 33 bln to INR25 bln this year this quarter. The 46% drop in focus is a misnomer as Pension Liabilities and Loan Loss provisions policy has already been updated in Q4 2011 and with INR7.5 bln in provisions just for pension liabilities to continue till December 2011, the rest is easily expressed by the Loan Loss provisions SBI never made in the earlier years before the accepting of the modified RBI policy in Q4

Of note however is the increase in bad loans, Gross NPAs rising to 3.52% for the bank a full point ahead of ICICI Bank which is also 33% in Assets with SBI holding a book of INR 7.9 tln in advances, a GROWTH OF INR 1.6 TLN or 70% of ICICI Bank’s Advances. A Bloomberg (Bloom’bg) list puts the public sector behemoth at #69 in the World’s biggest lenders and probably in the Top 10 in Corporate Loans gone bad. Since Calendar 2010 SBI has stepped up its rates 11 times, using its NIM cushion to proportionately reward short term deposits in retail and catch up with Money market yields. Industry wide 45 day deposits are 33% lower yielding at near 4% while the MSR in the inter bank market has moved to 9.25%

Industry expected banks to put up more fee income on the table to catch up with revenue losses but SBI stuck to the tried and tested with a 35% jump in revenues to INR390 bln Net Income for the Quarter nearly $10 bln for a single quarter from INR 300 bln in the year ago quarter. Toplines at most banks dropped or grew modestly. RBI has agreed publicly also that the high interest rate scenario engenders a disproportionately higher risk of bad loans but the interest rate hikes have moe to come as commodities have not settled down yet to being down the inflation to a stable rate

Despite the low Tier I core Capital at 7.6%, the bank has not been able to set up a proposal to encourage the GOI to invest upto its mandated 55% in a rights issue or the bank.. Meanwhile the bank is raising International Capital. SBI’s NIM shot up to 3.89% in Domestic Advances and 3.62% overall from a 3.33% Domestic and 3.16% overall in the preceding March quarter ( almost 106 bps above ICICI Bank) Interest Income on Advances in fact grew 36% but investors are likely to be slow to heed the same on Monday as markets continue their xit spiral, Portfolio investment exiting the country as opportunities run out in the widely acknowledged fairly priced/overvalued market in Asia The growth in Advances was a health 18.73% just above the Industry growth rate of 18% while the PLR increases of 185 bps year on year made up for the extraordinary rise. However QOQ incrreases interest Income also up 12% with Advances growing from March by 2.x% NII is up more than 20% sequentially

Staff xpenses remain the most part of Operating expense increases as a Wage revision is charged continually. The counter cyclical provisions esp for contingencies ( black swan events) are another Rs 550 crores or INR 5.5 bln. Advances to Large Corporates stand at INR 1.15 tln for the bank and the Retail book is INR 1.65 tln SME, Agri and International Advances are a Trillion each too. The Banks NII is up to INR 97 bln or $2,5 bln up from INR 81 bln in the March quarter nearly 25% QoQ from $2 bln