Arundhati Bhattacharya, Chairman, SBI, said: “Pressure (on asset quality) appears to be subsiding. But we need to see a pick-up in the economy to see appreciable changes in asset quality.”

Net interest income grew 15 per cent to Rs 13,252 crore and fee income growth was 11 per cent to Rs 2,837 crore, though there was a fall in treasury income.

The profitability got a boost of Rs 6,000 crore from sale of stressed assets to asset reconstruction companies (ARCs) during the quarter, of which Rs 5,566 crore was non-performing. In the previous financial year, the bank sold Rs 3,700 crore of assets to ARCs.

The profit was marginally higher than a consensus Bloomberg estimate of Rs 3,279 crore.

Investment provisions of Rs 552 crore, as compared to a gain of Rs 531 crore a year before, weighed on profitability as bond yields hardened during the quarter. Profitability would have improved further if the states of Andhra Pradesh and Telangana had not made pre-poll promises of loan waivers. Of the fresh slippages of Rs 9,932 crore, that in the farm loan portfolio was Rs 1,959 crore and Andhra Pradesh alone accounted for Rs 600 crore of additional slippage.

The promise of loan waiver made borrowers reluctant to pay and adversely impacted repayment. The bank fears an “induction effect”, of similar promises in poll-bound states, having a further adverse impact on the repayment culture. Bhattacharya said she’d conveyed her reservations on such proposals during interactions with the banking regulator.

“On the agriculture book, at this point in time, it is a little uncertain. Having said that, the monsoon has arrived all over the country and sowing has picked up speed. We believe that if there is no clarity, people will start repaying loans very soon. At the end of the day, they also have to carry on their farming activities. By having their account as a non-performing asset (NPA), they will not be able to access funds,” she said.

The NPA asset portfolio improved, albeit marginally, as the gross NPA level fell by Rs 1,100 crore sequentially to Rs 60,434 crore, 4.9 per cent of gross advances. About Rs 3,000 crore of write-off due to the sale of stressed assets also helped to reduce bad loans. Net NPAs, however, moved up marginally.

Lower debt recast on a sequential basis led to lower provisioning. Year-on-year, the loan loss provision increased to Rs 3,903 crore as compared to Rs 2,266 crore but was down sharply from Rs 5,884 crore of the preceding quarter. In addition, upgradation and recovery was Rs 3,500 crore in April-June.

Reduction in stressed assets has also helped the bank to improve the net interest margin. The NIM from domestic operations was 3.54 per cent, an increase of six basis points from the January-March period. Bhattacharya, who took charge in September last year, has always refrained from providing margin forecasts, with the economic uncertainty due to the slowing in growth rates.

While credit growth year-on-year was 10 per cent, the bank reduced its loan book by Rs 22,000 crore over the March-end numbers, as credit demand continues to be sluggish. “We expect credit to pick up in the third quarter, and we see 15 per cent credit growth during the financial year,” said Bhattacharya.

Deposit growth was 12.85 per cent, led by a 30 per cent growth in retail term deposits. The growth in current and savings account deposits was 10 per cent and these were 43.5 per cent of total deposits.