SBI loss: SBI posted a surprise loss in Q1 due to treasury losses

() reported a surprise 7% drop in net profit year-on-year due to a huge hit to the market value of the bank’s government bond investments as yields rose in the quarter. Net profit fell to Rs. 6,068 crore in the quarter ended June 2022 from Rs 6,504 crore a year earlier as the bank booked a loss of Rs 6,549 crore on its investments due to impairment in the quarter. As a result, other income, which includes fee income, gains from foreign exchange and derivatives transactions and gain or loss on sale or revaluation of investments, fell 80% to Rs 2,312 crore from Rs 11,803 crore a year ago.

Chairman Dinesh Har said losses were marked relative to the market (MTM) and booked when the benchmark 10-year bond reached 7.45% in the quarter, but because yields have since declined, the bank is not required to recognize more losses and may have to book gains in the current quarter.” If the 10-year yield remains where is now around 7.30%, we will be able to bring back Rs 1,900 crore. If it goes up to 7.75%, we may have to make another Rs 2,000 crore to Rs 3,000 crore of provisions. But with inflation down and the currency also strengthening , we do not expect a sharp jump in yields,” Khara said.

The 10-year bond rose to 7.50% in June, the highest level in more than three years, on fears that rising inflation would force the Reserve Bank of India (RBI) to raise rates. It has since declined to 7.30%. RBI raised its benchmark repo rate for the third time in four months on Friday, reiterating its commitment to bring inflation below its outer bound of 6%. Heavy investment losses overshadowed an otherwise solid performance with loan growth of 15%, driven by 19% growth in retail loans and 11% growth in corporate loans.

Excluding trading income and MTM losses, core operating profit increased 14% to Rs. 19,302 kr. Net interest income (NII) or the difference between interest earned on loans and interest paid on deposits increased by 13%, while net interest margins on domestic loans improved by 8 basis points to 3.23%. One basis point is 0.01 percentage point.

Khara said the bank is confident of sustaining 15% loan growth this fiscal as demand for both retail and corporate loans is strong.

“We don’t see any challenges in terms of loan growth. Retail loan growth remains strong and we have 49% underutilization of working capital loans with 26% unutilized limits amounting to more than Rs 5 lakh crore. Retail trade is growing and capacity utilization has improved to 75% with many companies now turning to banks to borrow from the securities markets,” Kara said, adding that demand for loans came from sectors such as energy, roads, ports, oil and aviation.

The bank’s gross NPA ratio fell 141 basis points to 3.91% and credit costs fell 18 basis points to 0.61%, with NPA provisions down 15% to Rs 4,268 crore from Rs 5,030 crore. However, the shortfalls widened to Rs 9,700 crore in the quarter ended June 2022 from Rs 2,845 crore in March 2022.

Khara said the rise in gaps was not a cause for concern. “Of the Rs 9,700 cr that slipped, Rs 2,800 cr has already been withdrawn. It is also lower than the Rs 15,666 cr reported a year earlier…we are mindful of our risks and rewards,” he said.

Slippage rate fell to 1.38% in June 2022 from. 1.47% a year ago. SBI has a provision to raise a total of Rs 11,000 crore through bond sales this fiscal.

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