The earnings of State Bank of India (SBI), the country’s largest lender, are a good reflection of how the Indian economy fared and what the outlook is for the coming year. After all, the lender is responsible for more than a quarter of the bank loans given in the country.

The SBI Q4 results this time around also offered a decent insight on what insolvency procedures have meant for corporations and the country as a whole.

Here are five key things that SBI’s numbers show about itself and the Indian economy as a whole:

Recognize the darkest hour

SBI reported a massive quarterly loss of Rs7,718 crore for Q4 that wiped out the profits of previous quarters to ink a full-year loss of Rs6,547 crore. Even on a consolidated basis, the loss was Rs4,556 crore for the year. This is the second-largest quarterly loss by a bank historically, the highest being by Punjab National Bank. In every sense, fiscal year 2018 (FY18) looks to be the darkest hour for banks as they complete recognition of all the possible toxic assets they hold and own up to their mistakes on risk management. SBI is no different.

The pain is firmly behind us

Yes; SBI reported a nasty gross bad loan ratio of 10.91% or a toxic loan stockpile of a humongous Rs2.2 trillion. This simply states that lenders are recognizing the fault lines on private corporate balance sheets. But the lender reported incremental slippages of Rs33,670 crore, an increase of 30% sequentially. That is not so bad considering that these slippages were basically some bad loans disguised as normal up until now. The removal of all kinds of forbearance on recognition of bad assets by the Reserve Bank of India has made sure this disguise was removed. For FY18, SBI’s slippages were less than the previous year, which means the balance sheet is healing. Stretching it to the economy, it also means incremental pain is less from the private sector.

Hope springs eternal

The highlight of SBI’s earnings was the clear guidance given by the lender’s management. SBI has stated that by March 2020, it would bring down its gross bad loan ratio from the current 11% to below 6%, a slippage ratio of less than 2% and a net bad loan ratio of less than 2.3%. The guidance may not be ambitious but it is nevertheless challenging. The management is confident that economic growth will pick up to provide it opportunities to lend and the Insolvency and Bankruptcy Code (IBC) will fetch value for assets. SBI’s exposure to the borrowers referred under IBC stands at Rs77,626 crore and it has already got a shot in the arm with the successful resolution of Bhushan Steel Ltd under the code.

Better safe than sorry

Meanwhile, the lender is leaving nothing to chance as it ramped up its provisions yet again. Its provision coverage ratio stands at 66% and that for IBC accounts is 63%. The management is sanguine on the outcome of the cases under the code and expects a resolution to emerge for the first set of 12 cases by September 2019. That means big gains on provisioning.

Fund strong balance sheets through a strong balance sheet

SBI has chosen to cater to only strong corporate balance sheets, explained chairman Rajnish Kumar. It has brought down the number of branches that catered solely to large companies from seven to four and its large corporate vertical will fund borrowers with a rating of minimum AA. It is clear that as various sectors consolidate, SBI will refinance strong balance sheets to fire up an investment climate.

As for the SBI stock, investors forgave the loss and rewarded the lender for its guidance and sent the share price up 3.7% on Tuesday.

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