SBH reports a massive loss ahead of merger

Posted on November 1, 2016

There is just one quarter left before SBH stops filing separate financial results as it is due to merge with SBI, India’s largest lender. But the poor results this quarter have denied the bank a place in history as being a consistently profit making bank since its inception in 1941 or from 1956 when it was first taken over by Reserve Bank of India (RBI). Largest among the associate banks, SBH, with a total business of Rs. 2.53 lakh crores, has reported a massive net loss of Rs. 776.64-crores in the second quarter of the current financial year. This was due to steep increase in incremental provisioning towards NPAs as the SBI asked the bank to keep inherent weakness in common loans and advances in mind when it comes to provisioning.

The SBH officials say that this was the first time that the bank has ever reported losses in its history! This quarterly loss was too big considering the fact that the bank had reported a net profit of Rs 1,064.93 crores at the same quarter during the financial year 2015 – 2016. During the first quarter of this financial year, which ended in June, its net profit fell to as low as Rs 28 crores from a profit of Rs. 251 crores a year ago as provisioning towards NPAs rose to Rs. 892 crores from a little over Rs. 300 crores during the corresponding quarter of the previous financial year. The provisioning requirement blew up to Rs. 2,266.7 crores by the time it concluded the second quarter which ended on September this year.

“SBI advised us to make appropriate provisioning on a prudent basis based on the inherent weakness in common loans and advances in line with the lower IRAC (Income Recognition, Asset Classification) status in SBI Group as a whole. The bank has reclassified such common accounts which have resulted in increase of NPAs by Rs 2,623.90 crores, incremental provisions by Rs. 2052 crores, interest reversal of Rs 132.67 crores and its consequential impact on all ratios”, SBH managing director, Santanu Mukherjee said. Spokesperson of the bank said they cannot rule out some fresh slippages during the quarter, the provisioning made was not entirely on account of these slippages. “Based on the SBI directions the bank had to make provisioning even towards standard assets of some accounts, which had already turned NPAs or substandard assets in SBI books,” he said. Read more on SBI

In its statement the SBH management said that the net loss was on account of higher loan loss provisioning while the operating profit grew by 36.30 percent to Rs 1,101 crore as compared with Rs 807.8 crores during the corresponding quarter of the previous financial year. These numbers may not matter much to SBH as it become non-existent in the next few months. According to the bank officials, the SBI is likely to start reporting the financial results together with that of the merged entities as a single bank from the next financial year onwards. The other four associate banks to be merged with SBI are State Bank of Mysore (SBM), State Bank of Bikaner and Jaipur (SBJ), State Bank of Patiala (SBP) and State Bank of Travancore (SBT). But SBH officials will certainly be disappointed that their bank could not create a record in history as a profit making bank since its inception in 1941.

The SBI could have been a little patient and waited until the merger before classifying assets as NPAs for the sake of provisioning. That way SBH would have created history as a bank that made profit since its inception in 1941. It would have made both SBI and SBH proud and would have attracted additional customers to SBI due to the news beamed on newspapers and televisions across India. For example, consider a scenario where a company that has received loan from a consortium of banks – which includes SBI and its associate banks – kept loan payment up to date with regard to SBH but defaulted on repayment to SBI. Then SBH was asked to classify loans in all such cases as NPAs for the sake of provisioning because post – merger those loans will have to be reclassified as NPAs by the SBI as they become two loans of a single account. This act by the SBI is a classic example of how ‘haste makes waste’. Read more on Startups