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Analyst Meet / AGM - Analyst Meet

Maintains domestic NIM guidance at 3.5-3.6% for FY2014

State Bank of India

13-Aug-2013, 03:41
State Bank of India conducted an analyst meet on 12 August 2013 to discuss the financial performance for the quarter ended June and prospects of the bank. Pratip Chaudhuri, Chairman of the bank addressed the meet:
Highlights:

The performance of the bank was mainly impacted by higher incremental provisions for employees pension, gratuity and wage hike of Rs 700 crore and foreign investment related MTM losses worth Rs 574 crore in the quarter ended June 2013.
Bank had to provide for incremental Rs 600 crore as provision for pension with the hike in longevity rate to 81 years from 76 year earlier, while it would continue to provide similar quantum of pension provisions for next 3 quarters with the total additional pension provision of Rs 2400 crore for FY2014.
Bank has continued to made provision of wage revision, under negotiation, at the rate of 15%.
The MTM losses in the international investment book were caused by increase in US yield and surge in spread with Emerging Economies after concerns over tapering of US bonds purchase program. However, bank has recovered about Rs 270 crore of losses with improvement in US yields in the current quarter so far.
Bank recorded one of the record fresh slippages of Rs 13766 crore in the quarter ended June 2013. However, more than half of fresh slippages were contributed by agri and SME segment.
As per the bank, about Rs 2500 crore of bad loans in the SME segment would be recovered (including closure of accounts and restructuring) in the SME segment during quarter ending September 2013, while expects the slippages to be not more than Rs 1000 crore. Thus, there will be net reduction in Gross NPA in SME segment in the quarter ending September 2013.
Most of fresh NPA in the agri segment were mainly on account of non-renewal of accounts with draught in some part of country last year. However, the bank targeted the renewal of about 18 lakh accounts with the better monsoon in 2013. About 4.5 lakh accounts were renewed in July 2013, while balance accounts would be renewed in the current quarter ending September 2013. Thus, bank expects most of the amount slipped to NPA category in agri segment to recover in the quarter ending September 2013.
Bank expects the fresh slippages in the mid-corporate segment not to exceed Rs 2000 crore. Meanwhile, the recovery of about Rs 1000 crore is expected in the mid-corporate segment over next six months.
RBI dispensation to continue to classify the restructured advance as normal instead of NPA, if the date of commissioning is missed by one year would help to control NPA.
As per the bank, provision for bad loans were lower in the quarter ended June 2013, as the large fresh slippages occurred in the SME and agri segment where collateral coverage is higher.
Bank has conducted fresh restructuring of advances worth Rs 5000 crore in the quarter ended June 2013. Meanwhile, the bank has upgraded about Rs 3300 crore restructured advances to standard category on satisfactory payment performance for two years. About Rs 1050 crore restructured advances slipped to NPA category in the quarter ended June 2013.
Bank has the restructuring pipeline of Rs 10000 crore, while about 40% relates to large corporate segment. As per the sectoral classification, about 30% of the restructuring pipeline consists of iron & steel sector, while the road and ports also contributes significant portion.
The NIM of the bank has been mainly impacted by the NPA accretion and interest income reversal.
The interest income reversal amounted to Rs 390 crore for the quarter ended June 2013.
Bank continues to maintain the guidance of domestic NIM at 3.5-3.6% for FY2014, while expects the NIM to improve from 3.44% in the quarter ended June 2013. The international NIM would be around same level of that in quarter ended June 2013 for next 3-6 months.
The AFS G-sec portfolio of the bank stands at Rs 1.1 trillion, while HTM stood at Rs 2.15 trillion at end June 2013. The entire AFS investment portfolio of the bank amounted to Rs 1.6 trillion, while the entire HTM investment portfolio stood at Rs 2.33 trillion at end June 2013.
The duration of AFS portfolio stood at 4 years at end June 2013.
Bank has the surplus liquidity of Rs 62000-70000 crore. Thus, bank has targeted strong credit growth of 20% for FY2014. Although, the domestic economic conditions remain weak, the credit growth would be contributed by higher demand for domestic credit over external commercial borrowings and bank borrowing over bonds raising.
As per the bank as on date the MTM losses on domestic G-sec portfolio would be Rs 1500 crore for the quarter ended September 2013, while further bond yield needs to be watched.
Bank will continue to add about 1000-1200 branches every year, while expects to cross the 15000 branch-mark in September 2013.
Bank has ordered about 5000 ATMs machine, while has also ordered about 1000 cash deposit machines to be installed in FY2014. Currently, bank has the network of 29902 ATMs and 800 cash deposit machines.
Bank expects the PAT of Rs 16000 crore in FY2014, while the dividend payment is projected at Rs 3000 crore.
Bank also plans the right issue and QIP to raise capital, which will depend on market conditions.
As per the bank, the capital position is strong to merge one associate bank and expected to announce the name of one associate bank to be merged by end September 2013. Bank has indicated that the associate bank with lower retail base will be merged.
Bank also indicated that Stake bank of Hyderabad (SBH) would be difficult to merge due to current political situations, but do not rule out the SBH merger option.