Salary, pension arrears eat into SBI Q3 profit, down 35% to Rs 9,164 cr

Mumbai: A steep Rs 7,100-crore one-time provision towards salaries and pensions ate into the profitability of State Bank of India to the tune of 35 per cent on-year at Rs 9,164 crore in the December quarter, the nation's largest lender said here on Saturday.

Had it not been for this one-time provision, which takes care of the entire additional provisions needed towards salaries and pensions arising out of the higher 17 per cent wage settlement reached with employee unions, net profit would have been Rs 16,264 crore, SBI chairman Dinesh Kumar Khara told reporters here.

On the back of a nearly 15 per cent growth in advances, the chairman guided towards better days ahead saying, "I am very confident of maintaining credit growth at this level or even bettering it as the fourth quarter is a busy season and given that the bank is sitting on a loan pipeline of Rs 4.5 lakh crore.

On the need to raise capital given the high-interest rate regime, he said, if need be we will look at an equity raising but with our profitability level, we can easily plough back Rs 40,000 crore to core capital for funding. Even without that we have the liquidity buffer to lend an additional Rs 7.5 lakh crore.

"Don't worry, we have enough capacity to fund the economy as of now and if the demand rises, we will look at funding options," the chairman said.

Explaining the impact of the wage settlement, Khara said, 'Of the Rs 7,100 crore total payout, Rs 5,400 crore is towards pensions, due to some anomalies in the way our pensions since 2002. Some of the employees were getting 40 per cent and some were getting 50 per cent and the matter has been subjudice since 2002.

"Now that there is legal clarity, we thought of clearing this at a go with this Rs 5,400 crore allocation. Following the court order, we have decided to pay every one of the 1.8 lakh pensioners at 50 per cent of the last drawn wage. This allocation takes care of the entire backlog till December 2023," he said.

Khara further said in fact the bank has been setting aside 10 per cent towards salary and pension arrears so far and this totals up to Rs 13,400 crore till December 2023. We will have to set aside Rs 5,490 crore more in the March quarter. Also, Rs 1,700 crore of the total Rs 7,100 crore has been made towards clearing dearness allowance dues, again arising from the wage hike.

In the reporting quarter, net profit declined by 35 per cent to Rs 9,164 crore compared to Rs 14,205 crore in the year-ago period.

The wage hike impact was so high, even a massive improvement in the asset quality, and the resultant gains from lower provisions did not help.

Its gross bad loans came down by 72 bps to 2.42 per cent or at Rs 86,749 crore, and net bad loan pile declined to over a 10-year low of 0.64 per cent, down 13 bps to Rs 22,408 crore, the chairman said and exuded confidence in further improving the same. Its provision coverage ratio stood at 91.59.

It can be noted that at 64 bps, State Bank's NPA level is better than the best private sector peers.

The quarter also saw the operating profit declining 19.36 per cent to Rs 20,336 crore from Rs 25,219 crore, due to an increase in the wage bills, he said.

Due to the increase in interest rate, and the resultant jump in deposit cost, the key net interest income in the quarter edged up by 4.59 per cent, Khara said, adding the cost of deposit for the bank jumped by 40 bps, led by an increase in higher priced term deposits and a 330 bps fall in the low-cost Casa deposits to 41.18 per cent.

While whole bank NIM inched down by 1 bp to 3.28 per cent while domestic NIM declined by 8 bps to 3.41 per cent and the management is confident of maintaining it at 3.25-30 per cent.

Gross advances rose 14.38 per cent to Rs 35.84 lakh crore, of which corporate advances rose 10.71 per cent to Rs 10.24 lakh crore, retail personal rose 15.28 per cent to Rs 12.96 lakh crore, of which home loans grew 13.16 per cent to Rs 6.94 lakh crore.

Overall deposits of the bank gained 13.02 per cent to Rs 47.62 lakh crore. Of this domestic Casa declined by 330 bps to Rs 18.86 lakh crore but term deposits rose 19.54 domestic to Rs 26.86 lakh crore Of the overall credit growth domestic advances grew 14.47 per cent. Of this corporate and SME loans crossed Rs 10 lakh crore and Rs 4 lakh crore respectively, clipping at 10.71 per cent and 19.24 per cent respectively; agri loan jumped 18 per cent and retail personal advances grew 15.28 per cent. Loans from its overseas offices grew 13.90 per cent.

Whole bank deposits grew at 13.02 per cent, of which Casa deposits grew 4.48 per cent and Casa ratio stands at 41.18 down 330 bps from year ago.

And Khara was very vocal about the asset quality of the unsecured book saying "my unsecured loans are more secure than the secured book. As much as 90 per cent of the personal loans are given to those who have salary accounts with us." Interest income for the quarter rose 23.23 per cent to Rs 1,06,734 crore, and interest expenses rose 37.84 per cent to Rs 66,918 crore, giving it the key profitability gauge of net interest income at 39,816 crore, which was only 4.59 per cent more than the year-ago period.

The bank has made a Rs 240 core provision towards its Rs 1,000-crore exposure to alternate investment funds following the mid-December RBI circular towards the same and Khara said the bank may have to make some more incremental provisions towards this going forward.