Year after year for the last nine years, India’s largest lender State Bank of India (SBI) has assured the market that the worst may be over in terms of bad loans. But the problem is far away from disappearing.

According to analysts, with the Reserve Bank of India’s (RBI) new rules released on Monday tightening the bad loan resolution framework to ensure their early recognition, the worst may not be over yet for SBI and the banking system. Last week, the lender shocked the market by reporting its first quarterly loss in 17 years as bad loans piled up.

 The bank said it had misreported its FY2017 accounts. Most public sector banks (PSBs), including SBI, reported discomforting non-performing loans divergence (difference between the RBI's assessment and the bank's reported non-performing loans) – one that is growing not just in absolute amount but even as a percentage of loans.

 SBI, which is often seen as a proxy to the economy and accounts for more than a fifth of India's banking assets, admitted that an RBI audit of its books for the past financial year (2016-17) led to the addition of Rs 23,239 crore in bad loans.

 With this, SBI and many public sector banks joined the ranks of private lenders like Yes Bank and Axis Bank, which too reported NPA divergence.

SBI reported a net loss of Rs 2,416 crore for the fiscal third quarter after setting aside funds to cover rising bad loans and losses on its bond portfolio. It had reported a net profit of Rs 1,582 crore in September quarter.

According to government data, SBI wrote off bad loans worth Rs 20,339 crore in 2016-17, the highest among all public sector banks.

State-owned lenders had a collective write off of Rs 81,683 crore for the fiscal.

The data pertains to the period when the associate banks of SBI were not merged with it.

Public sector banks’ write-off stood at Rs 27,231 crore in 2012-13, government data showed. The figure has jumped nearly three-fold in five years.

For the nine months ended December 31, 2017, the closing levels of gross NPAs of SBI was close to a whopping Rs 2 lakh crore (Rs 1.99 lakh crore).

Deepak Shenoy, CEO and founder of Capitalmind, has dug evidence from 2010 onwards, which establishes that each time the SBI chief says “worst is over” or “worst is behind us”, the worst actually keeps coming each year.

Anshula Kant, chief financial officer of SBI told Financial Chronicle, “We are working through a tough, elongated credit cycle. Capacity utilisation is low, demand is low and there are few green field projects and some sectors continue to remain stressed. While the stress has been recognised in most sectors, incase of power sector, the work through is still happening.”

According to ICRA’s Karthik Srinivasan, “Part of SBI’s bad loans are due to the stress in the economy. SBI’s results are still better than most public sector banks as they have a more diversified portfolio mix in terms of retail assets, which have helped them mask the stress on wholesale portfolio. We don’t think the worst is over as the new framework on resolution of stressed assets issued by the RBI is likely to increase the reported NPA levels of the banks in the next few quarters and lead to higher provisioning cost for banks.”