SBI Q3 Results: SBI took a hit in wages, pension provisions due to lower profits.
Chairman Dinesh Khara, however, reiterated the bank’s target of maintaining a return on equity (RoE) of 15 per cent on a sustainable basis, even as he asserted that the bank would continue to record loan growth of 14-16 per cent.
“The clause is a one-time item. Anomalies in pension and dearness allowances had to be fixed following a ruling in a court case that has been ongoing since 2022. We have received approval from the government and RBI and are currently awaiting official notification. Apart from pension provisions, we continued to provide wage hike of 17 per cent to Rs 63.13 crore during the quarter,” Khara said.
The increase in pension and dearness allowances will benefit 1.8 million pensioners at the big bank and another 80,000 family pensioners. The bank has also made a provision of Rs 12,718 crore at 17% cumulatively for wage revisions in the nine months of this fiscal. Khara said most of the employee-related provisions have been completed and the provisions of this account will be lowered by at least Rs 9,000 crore in the next quarter.
Apart from provisions, the bank was also impacted by rising deposit costs, which saw its net interest margin (NIM) rise to 4.75% from 3.90% in the year-ago period. NIM, the difference between the rate of return earned by banks on loans and interest on deposits, fell to 3.34% in December 2023 from 3.69% in the same period last year.
The pressure on NIM also had an impact on net interest income, which rose by around 5% despite loans growing by 14%. However, KARA was confident that it would be able to maintain NIM at the current level as the deposit interest rate increase is completed. “Since such an increase in deposit interest rates is not expected in the future, NIM is scheduled to be maintained. We will focus on improving our Current and Savings Account Accounts (CASA),” he said. Khara said the bank is open to raising equity capital but its capital adequacy is comfortably placed at 14.32% after recovering profits for the first nine months. . “Our loan growth is 14-15% and our current RoE is 19%. Only when loan growth exceeds RoE will capital raising be considered. “Capital will not be a constraint on growth,” he said.
The bank saw a 19% year-on-year increase in small business lending, an 18% increase in agricultural development, and a 15% increase in retail and personal lending. The fresh decline during the quarter increased to Rs 4,960 crore from Rs 3,831 crore in the quarter ended September 2023. This includes large SME accounts and some agricultural loans with what Khara calls “seasonal impact.”
Khara said the bank has a pipeline of Rs 4.6 lakh crore loans, of which 75% are from the private sector. According to an investor presentation on the bank’s website, the services segment accounts for the bank’s largest share after retail and home lending, growing 23 per cent year-on-year to Rs 4.01 billion.
Khara said disruptions in crude oil supplies due to tensions in West Asia and the pandemic due to a global slowdown were the only risks to India’s economy, which is currently one of the world’s strongest.
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