State Bank of India (SBI), the country's largest lender, said on Monday it returned to profit in July-September after three quarters due to robust domestic credit growth and a decline in slippages.

The bank reported a net profit of Rs 945 crore in the second quarter compared with a loss of Rs 4,876 crore in the previous quarter. The profit was higher than a Bloomberg poll that had forecast the figure at Rs 775 crore. However, the profit fell around 40% from Rs 1,583 crore a year ago.

The bank attributed the profit to a robust domestic credit growth of 11.11% over a year, along with a decline in slippage ratio by 159 basis points (bps), credit cost by 68 bps and overhead costs by 3.19% over last year.

The bank’s management said that the slippage ratio at 2% is the lowest in six quarters; it also added that the bank is on track to achieve the target of 10-12% credit growth for the current financial year.

The management added that due to relaxation for SME accounts in classifying them as NPAs after a default; last quarter around 1,200 crore such accounts were not identified as NPAs and most of them slipped this quarter.

Asset quality showed an improvement as the gross NPA ratio narrowed to 9.95% at the end of the September quarter compared to 10.69% in the previous quarter. Net NPA ratio, too, declined to 4.84%, from 5.29% in Q1.

Net interest income rose 12.5% over last year to Rs 20,906 crore but declined 4% on a sequential basis. The bank said its fee income for the first half of the current financial year fell 2.3%, mainly due to a cut in the charges on maintenance of minimum balance in accounts. Net interest margin stood at 2.76%.

Provisions and contingencies fell around 37% over a year to Rs 12,092 crore in Q2. The bank's management said it had made a provision of Rs 56 crore for its exposure to IL&FS—Rs 250 crore at the holding company level.

Addressing the media, SBI chairman Rajnish Kumar asserted that IL&FS was not a cause of concern for the bank and that it will wait for the new board to come up with a turnaround plan.

Kumar added that the bank is anticipating Rs 6,000 crore in recoveries from NCLT accounts this year. He also said that he feels the resolution process of NCLT 1 and NCLT 2 accounts are on track to be completed by March 2019.

“In the current market situation, I consider SBI in the best position to seize the opportunity,” Kumar said, adding that he still believes that the next year, i.e. FY20 will be “the year of happiness.”

On the fears surrounding the NBFC space, Kumar said, “Things seem to be much better today than they were three weeks ago,” reiterating that he had announced a Rs 45,000 crore portfolio purchase programme and adding that he hopes NBFCs will be able to keep their upcoming commitments on commercial papers.

The SBI’s stock closed at Rs 295.30 on the BSE on Monday, up 3.45% from the previous day's close. The benchmark BSE Sensex, meanwhile, closed 0.17% lower at 34,950.92.

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