SBI annual report: Select noteworthy points you should know

Moneycontrol Bureau

India's largest lender the State Bank of India ( SBI ) grappled to maintain its credit quality during 2012-13. Nomura Equity Research, a global brokerage firm, has identified some salient points, which will have bearings on the bank's future performance.

Meanwhile, Nomura has retained its rating at 'reduce' with a target price of Rs 1950 as against the Rs 1,998, the closing price on June 20, 2013.

"We examine SBI's FY13 annual report and analyze the following issues -relative movement in non-performing loan buckets, excess 'specific' provisions on the book, asset liability miss-match (ALM) gap, loans and deposits maturity structure, trend in priority sector lending, working capital loans and contingent liability trends," it said in a research report.

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Here's what Nomura analysts Vijay Sarathi, Abhishek Bhattacharya and Amit Nanavati pointed out :

Ageing of GNPLs: SBI has a relatively stable level of sub-standard assets in its GNPL book historically the proportion of sub-standard assets which was in the 45% area for the last three years, has now dropped marginally to 41% in FY13. This marginal increase in seasoning compares favourably with the other large PSU banks. PNB has 49.5% of its GNPL book in sub-standard assets which is an improvement over FY12 (when the proportion was 64%). BOB has actually seen a substantial spike in the proportion of sub-standard assets over the last two years 35% in FY11 to 60% in FY12 to 62% in FY13. So, outside of fresh delinquency, the probability of higher future provisioning spikes is relatively low for SBI.

Provision cover in excess of regulatory (IRAC) norms: The PSU banks have much lower excess 'specific' provisions when compared with the private banks. SBI has excess 'specific' provisions (in excess of IRAC norms) of 1.4% in FY13 compared with 12% for BOB and 4% for PNB. In contrast, the private banks like HDFC Bank carry 37% excess 'specific' provisions.

Provision cover on substandard and D1-D2 assets: We also look at what proportion of sub-standard and doubtful assets (D-1 and D-2 categories) have been covered by provisions. The rationale behind this analysis is -- since D-3 and loss categories should carry a mandated 100% provision, we analyze how much provision cover is left for substandard and D-1 & D-2 assets. SBI has a 39% provision cover for substandard, D-1 & D-2 assets compared with 44% for BOB and 38% for PNB.

Asset-liability management: SBI's ALM gap (defined as asset duration minus liability duration) improved to 4.2 months in FY13 from 8.5 months in FY12. This compares with a gap of 3.7 months for PNB and 11 months for BOB.

Priority sector lending mandate: SBI fell short of its aggregate priority sector lending mandate in FY13; priority loans comprised 36% of the previous year loans. This compares with 39.3% for BOB and 34.1% for PNB in terms of priority sector loan books.

Loan guarantees & acceptances: As a percentage of net worth, SBI's exposure to loan guarantees and other contingent liabilities comprised 314% in FY13, down from 375% in FY12. In comparison, BOB's exposure was 159% and PNB was at 243%. Most of the banks have cut back on their exposure to loan guarantees & acceptances in FY13.

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