The country’s largest lender State Bank of India (SBI) tripled its profit over the previous quarter and showed a marked jump over the losses it made in the corresponding quarter last year. Analysts had predicted increased profits and a healthier loan book for the lender after posting losses for two consecutive years in FY18 and FY19.

For the first quarter ended June 30, 2019, SBI posted a profit of ₹2,312 crore as against a loss of ₹4,876 crore in the corresponding quarter last year. The bank had reported a profit of ₹838 crore in the previous quarter ended March 31. SBI’s stock was down 2.76% on Friday even as the BSE Sensex rose 1%.

For the first quarter, the results of the top three public sector banks have been cheery. The country’s second-largest lender Bank of Baroda posted a profit of ₹710 crore, despite its merger with two other weak banks—Dena Bank and Vijaya Bank—last year. The third largest public sector lender Punjab National Bank, which was mired in several scandals in the last two years, also posted a surprise profit of ₹1091 crore in the first quarter.

However, it is too early to say whether the worst is over for these banks, which bore the brunt of non-performing assets (NPAs) that have roiled the banking system over the last four years.

Asset quality improvement for these three banks is still not encouraging. SBI’s net NPAs fell 0.41%, while for PNB’s asset quality deteriorated. PNB’s net NPA increased to 7.17% from 6.56% on a quarterly basis. While BoB’s net NPA rose 30 basis points during the quarter. But, year-on-year, SBI’s net NPAs fell 34% compared to the corresponding quarter last year.

Asset quality, an issue that has pestered Indian lenders for years as bad loans surged, was stable at SBI during the recently concluded quarter, with gross non-performing assets as a percentage of total loans at 7.53% at June-end, flat over the previous quarter and lower than 10.69% in the same period last year. Interest earned rose 6.5%, while provisions for bad loans dived 10.7% in the quarter.

But slippages continue to haunt PSBs. SBI’s fresh gross slippages went up 13% YoY and 107% from what it reported last quarter. Slippages indicate additions to NPAs. BoB reported fresh slippages worth ₹5,593 crore during the first quarter and made additional provisions worth ₹3,158 crore, while PNB’s slippages amounted to ₹5,500 crore.

SBI’s chairman Rajnish Kumar, announcing the bank results on Friday, said that it is going to be difficult to improve net interest margins (NIM), a key indicator of a bank’s profitability, due to muted credit growth. PNB’s good performance came not by increasing loans, the primary business of banks, but by recovering money aggressively from defaulting companies.

Recently, both SBI and BoB reduced interest rates on deposits, which should bring down their cost of funds. As consumer spending further squeezes business, the banks hope to hang on to their margins in the coming quarters. In its post-earnings press conference, BoB said: “Net interest margins should improve as the bank reduced deposit rates by 25 basis points in the second quarter.”

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