Q4 profit decline due to base effect, margin compression and higher provisions: Challa Sreenivasulu Setty, SBI

Synopsis

If you see, almost NII growth could have been better. The whole of last year the cost of deposits was higher while we moderated in the last quarter. If you see our cost to deposits have not significantly gone up but on the year-on-year basis the cost of deposits movement also has impacted the profits.

"If you see, almost NII growth could have been better.The whole of last year the cost of deposits was higher while we moderated in the last quarter. If you see our cost to deposits have not significantly gone up but on the year-on-year basis the cost of deposits movement also has impacted the profits," says Challa Sreenivasulu Setty, Chairman, SBI.

If you talk about Q4 numbers, there is a decline of 10% YoY, is it only due to one off in the last quarter same year or there are other factors too?
Challa Sreenivasulu Setty: Yes, the combination of factors. Of course, there is definitely a base effect. Q4 FY24 was an outstanding quarter for us. We had some provisions, right backs, and other things, but broadly there is a general compression of the margins also, which also is getting reflected in our NII.

If you see, almost NII growth could have been better. The whole of last year the cost of deposits was higher while we moderated in the last quarter. If you see our cost to deposits have not significantly gone up but on the year-on-year basis the cost of deposits movement also has impacted the profits.

You mentioned about provisions which have also gone up significantly. What has been reason for the same?
Challa Sreenivasulu Setty: Broadly the additional provisioning requirement in the Q4 as was on account of aging provision, as you know the assets become substandard to doubtful, doubtful to D1, D2, D3 increasing provision requirement. So, out of 9,000 crores additional provision we made, around 5,600 plus is on account of aging provision only. So, there is nothing unusual movement in the provisions.

After you have delivered one lakh crore operating profit, the aspiration was also for net profit of rupees one lakh crore. Is it happening this year?
Challa Sreenivasulu Setty: It would not happen this year. See, the operating profit to net profit ratio if you see, we have achieved around 64%, 65% going forward. If we maintain the same conversion ratio, we need about 1,50,000, 1,60,000 crores operating profit. So, it will take some time, but our aspiration is not about the profit numbers alone. If you see one of the things what we must talk about that even if you have not asked is the stellar asset quality what SBI posted. One of the best in the industry and we consistently have been performing well on that front.

Talk about margins, you did mention that there is going to be some pressure this year, but are you going to sustain over 3%?
Challa Sreenivasulu Setty: The idea is to keep the margins at 3%, this is the effort which we would continuously focus on. We would be strengthening our CASA mobilisation, current account and savings account mobilisation. We are running special campaigns activating our branches. We have large branch network. The branch network is critical for mobilisation of CASA. And there are so many other things what we are doing on the current account mobilisation in terms of transaction banking hubs, providing the solutions to the people, the companies, our business customers and focus on the trust, societies, associations, these are all efforts which we are making to ensure that the cost of resources remain moderate so that our margins will be protected.

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