State Bank of India is likely to report an improvement in its asset quality when it presents its first quarter results. According to top SBI sources, the bank has recovered bad loans worth around two thousand crore rupees during April-June 2008.

Top SBI executives, when contacted, refused to comment. SBI managing director S K Bhattacharya said, “We can’t divulge details before the first quarter results announcement”.

SBI’s credit quality had deteriorated during 2007-08, as it booked fresh bad loans worth Rs 2,700 crore, mainly on account of retail loans, and to some extent, mid-sized corporate loans. As on March 31, 2008, the bank had gross non-performing assets (NPAs) of Rs 12,837 crore compared with Rs 9,998 crore, a year back.

On the other hand, the bank is slated to make a provision of around Rs 1,000 crore against mark-to-market (MTM) losses of its investment. Out of this sum, around seven hundred crore rupees is expected to be provided for against depreciation of bonds the bank received from the government on account of its rights issue.

Banks are booking MTM losses against depreciation of bonds and equity investments during April-June 2008 period. Nevertheless, SBI is expected to clock double-digit growth in the first quarter to June 30, 2008 over the corresponding period a year back. This is despite the fact that demand for loans from sectors like commercial real estate and auto has slowed down.

Coming back to SBI’s bad loan management, government’s debt waiver-cum relief scheme would help SBI reduce its bad loans by another Rs 2,000 crore. SBI has waived overdues of around 25 lakh farmers, aggregating about Rs 7,000 crore. “It’s estimated that around 30% of the total waived sum had become NPAs,” another SBI insider indicated. Gross NPA stood at 3.04% as on March 31, 2008 while the net NPA stood at 1.78%.