Tough day for SBI management, investors as net profit falls by 75%

State Bank of India (SBI) declared its nine month ending consolidated quarterly results on Thursday February 11. The net profit for the October-December quarter fell 62 per cent year-on-year because of a jump in provisions and bad loans.

On financial front, the bank's interest income decreased by 0.51 per cent quarter on quarter (QoQ) to Rs 55087 crores in Q3FY16 as compared to Rs 55372 crores in Q2FY16.  Its total expenditure increased by 3.32 per cent QoQ to Rs 54860 crores in Q3FY16 as compared to Rs 53097 crores in Q2FY16. The company's interest expense increased by 0.84 per cent to Rs 35975 crores in Q3FY16 on quarterly basis.

SBI’s operating profit before provisions and contingencies decreased by 5.6 per cent QoQ to Rs 12734 crores in Q3FY16 as compared to 12013 crores. Its Provisions And Contingencies increased by more than 1.82 times to Rs 10500 crores in Q3FY16 as compared to Q2FY16. Provisions rose on account of an intense asset quality review conducted by the Reserve Bank of India (RBI) in the October-December quarter, where the regulator asked banks to consider providing for stressed assets that had been classified as standard. SBI's net profit dropped by 75 per cent to Rs 1259 crores in Q3FY16 on a quarterly basis.

SBI’s ratio of gross non-performing asset (NPA) as a share of gross advances stand at 5.1 per cent, higher than the 4.15 per cent reported in the July-September quarter. In absolute terms, gross NPAs for the third quarter stand at Rs.72791 crores, up by 28 per cent from Rs.56834 crores reported in the second quarter.

After the increased provisioning, the net NPA ratio for the December quarter stands at 2.89 per cent of the total assets as compared to 2.14 per cent in the September quarter. On valuation front the trailing twelve month (TTM) P/E of SBI is 6.58 compared to an industry P/E of 7.89. After the result the scrip of SBI declined by 3.46 per cent and is trading at Rs 153.45.