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State Bank of India Shares Drop as Soured Loans Climbed

State Bank of India shares headed for their biggest drop for this month in Mumbai after the nation’s largest lender said defaults climbed in the second quarter.

Net income rose 30 percent to 36.6 billion rupees ($673 million), or 54.51 rupees a share, for the three months ended Sept. 30, from 28.1 billion rupees, or 44.26 rupees, a year earlier, the Mumbai-based bank said in a filing to exchanges today. That compared with the 35.2 billion-rupee median of 38 analysts’ estimates compiled by Bloomberg.

The government-controlled lender’s profit growth may slow as bad debts rise further and demand for credit declines in an economy that the International Monetary Fund said is expanding at the slowest pace in a decade. The central bank’s reluctance to ease the highest borrowing costs among Asia’s major economies may also hinder State Bank’s efforts to boost lending.

“The bad-loan numbers disappointed,” Nitin Kumar, a Mumbai-based analyst at Quant Broking Ltd., said by telephone. “The management had given the impression that there would be a marked improvement in asset quality. Investors are disappointed.”

Shares of State Bank fell 3.8 percent to 2,158 rupees as of 3:09 p.m. in Mumbai. The stock has risen 33 percent this year, surpassing the 21 percent gain in the equity benchmark BSE India Sensitive Index. The Bankex Index, a gauge for 14 lenders in the country, has advanced 44 percent in 2012.

Bad Loans

Bad loans widened to 5.15 percent of total advances from 4.19 percent a year ago, SBI said today. Defaults will probably drop in the quarter as recoveries increase, Chairman Pratip C. Chaudhuri had told reporters on Aug. 10.

The nation’s economy will grow 4.9 percent this year, according to the IMF. Gross domestic product expanded 5.5 percent in the three months ended June from a year earlier, faster than a three-year low of 5.3 percent in the previous quarter, according to the most recent government data.

Net interest income, or revenue from lending minus payments on deposits, rose 4.7 percent to 110 billion rupees, the bank said in the statement. The 206-year-old lender’s total outstanding loans increased 18 percent from a year earlier to 9.6 trillion rupees at the end of September.

Loans at banks in India, excluding advances made to state agencies for food procurement, expanded 16 percent in the 12 months to Oct. 19, data compiled by the Reserve Bank of India show. The central bank trimmed its credit growth projection last month to 16 percent for the year ending March 31, from 17 percent.

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