SBI net profit, interest income post double-digit growth; cyber preparedness in focus

State Bank of India’s (SBI) net profit and net interest income both grew in double-digits for the July-September quarter, reaching record levels and broadly beating the consensus provided by most analysts. This performance was driven by robust credit growth and an improving net interest margin.

The bank, largest by asset size in the country, reported a net profit of Rs 23,038 crore during the quarter, up over 14% year-on-year (y-o-y). Its net interest income — difference between interest earned and spent on loans — grew nearly 15% to Rs 49,143 crore.

Despite divesting its stake in SBI Funds Management during the quarter, the lender's other income fell both on a y-o-y and sequential basis due to losses in its treasury operations as a result of higher bond yields. “The losses on the MTM (mark-to-market) devaluation and the forex losses are close to Rs 1,300 crores as compared to Rs 2,900 crores (of gain) in the last year's quarter 2.

So, it is because of these losses in the yield movement that is hitting us actually,” said Anindya Paul, Deputy Managing Director of Finance, while addressing the media after the bank's results. “The banking sector continues to witness healthy credit demand supported by strong capital and asset quality indicators.

We remain optimistic about India's medium-term growth prospects. As this opportunity expands, the banking sector continues to balance growth with a disciplined approach to liquidity, funding, risk and capital,” said the Chairman CS Setty.

The bank's loan growth grew by nearly 18% y-o-y, while deposit growth lagged a bit but still achieved a double-digit growth of over 12%. The bank maintained its loan growth guidance of 14-15%, explaining that the exceptional performance in the quarter under review was also aided by the $10 billion raised by the bank under the FCNR-B (Foreign Currency Non-Resident Bank) window, open until August end.

With restrictions imposed by the Reserve Bank of India (RBI) on hedging these deposits, only a portion of it is currently hedged, Setty explained. He further added that most of these deposits have a tenure of five years on an average.

Notably, under the central bank's current guidelines, only the principal amount raised through the FCNR-B window is allowed to be hedged, while the interest component is left uncovered. The bank's net interest margin expanded by 3 basis points to 3.11%, above the bank's aim of keeping the figure above the 3% mark.

Asset quality improved further, with both gross non-performing asset) and net NPA ratios declining. Shares of SBI, which were over a percent higher early in the day, eventually ended 1.7% lower on Tuesday after the earnings.

While the performance was positive on the face of it, the market was seemingly disappointed by the operating profit, which grew just 7% on-year as higher expenses and a disappointing treasury performance squeezed the bank.

“Obviously, the security, both of our systems as well as customer information is of paramount importance for us. And more than anything, I think it is strengthening our resolve further to ensure that our cybersecurity measures are strong enough to prevent any such breaches in future,” he added.

“It (cyber attacks across the banking system) is definitely a serious concern. I don't think anybody has any debating point on that. And as more and more digitalisation happens, the digital surface area is increasing. What we call the attack surface area is increasing.” “While it (information about cyber attacks) is definitely shared with the regulators and the security agencies, among the banks, among the financial system, the moment the incident happens, if it can be informed through a structured mechanism, I think that would be quite useful so that people can immediately take the measures,” Setty said.