SBI reports record loss, but why is the stock zooming?

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NEW DELHI: The State Bank of India (SBI) stock has surged more than 10 per cent since Tuesday. The spurt which is a welcome news in an otherwise sedate spell for the Street, might come in as a surprise for a few given that the bank posted a record quarterly loss of Rs 7,718 crore in the fourth quarter of 2017-18 fiscal.

Interestingly, at the heart of both the loss and the gain lies one common aspect- bad loans.

The record loss in the January-March quarter came on back of mounting soured loans as gross bad loans as a percentage of total loans of the lender rose to 10.91 per cent from 10.35 per cent three months earlier and 6.90 per cent a year prior, according to filing submitted by SBI to the bourses.

However, the country’s largest lender believes that the worst is finally over.

SBI can heave a sigh of relief as it had earlier indicated about Rs 50,000 crore of bad loans, but the new numbers are lower at about Rs 33,000 crore, which has already been provided for. Moreover, the bank has set aside more funds for bad loans after a change in banking regulation.

Announcing the results, SBI chairman, Rajnish Kumar said, “We have put the past behind us. Last year was a year of disappointment. This (FY19) is a year of hope and we expect that FY20 will be a year of happiness.”

He said that the compounded annual growth rate for loans would accelerate to 12 per cent by 2020, and gross non-performing assets (NPAs) ratio would be brought below 6% in the same period.

The chairman struck an optimistic note on asset quality, pointing out that he expected substantial recoveries from bad loans under the Insolvency and Bankruptcy Code in the first half of the current year.

Of the first list, the bank expects recovery of 48% of loans and sees a bulk of the resolutions taking place in the first half of FY19. On interest margins, Kumar said that there would be continuous improvement as some large loans moved out of the NPA category to standard assets portfolio. The bank is also rationalising its branches and international offices.

The Indian state-run banking sector in fact found a reason to cheer last week after Tata Steel bought the insolvent Bhushan Steel, resulting in the first big success under the Insolvency and Bankruptcy Code. Incidentally, at Rs 12,800, SBI had the largest exposure to the stressed company. The resolution was in fact, the trigger which initiated the uptick in the SBI scrip.

At 10.57 on Wednesday, the SBI stock was up 4.37 per cent at Rs 265.25 while the broader market was down almost quarter a per cent.

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