State Bank of India, the nation’s largest lender by assets, posted a 19 percent decline in fourth-quarter profit as provisions for bad debt climbed. Shares slid the most in 15 months.
Net income dropped to 33 billion rupees ($593 million), or 49.13 rupees a share, for the three months ended March 31, from a record 40.5 billion rupees, or 63.76 rupees, a year earlier, the Mumbai-based lender said in an exchange filing today. On a standalone basis, that missed the 37.2 billion-rupee median of 42 analyst estimates compiled by Bloomberg.
Provisions for bad loans and a drop in borrowing costs as the central bank cuts interest rates may erode the lender’s earnings as Asia’s third-largest economy grapples with a decade-low pace of growth, analysts said. SBI reduced its base rate, the minimum at which it lends, twice in the last nine months.
“There’s going to be no respite on the bad-loan front for a few more quarters,” said Dolly Parmar, an analyst at IFCI Financial Services Ltd. in Mumbai. “Growth is going to be difficult, while margins and profitability will be under stress.”
Shares of the bank fell 7.9 percent lower, the steepest drop since Feb. 22, 2012, and closed at 2,177.60 rupees in Mumbai. The stock has dropped 8.7 percent this year, versus a 1.3 percent gain in the benchmark S&P BSE Sensex index and a 0.8 percent advance in the Bankex Index of 14 lenders.
Provisions for non-performing assets rose to 39.7 billion rupees from 28.4 billion rupees a year earlier, according to a press statement, while soured debt at the bank widened to 4.75 percent of outstanding loans from 4.44 percent. Bad loans at Indian banks as of Dec. 31 stood at 3.69 percent of the total, data provided by the Reserve Bank of India show.
The government is discussing bad loans, audits and project evaluations with state-run banks, Rajiv Takru, secretary at the department of financial services in the Ministry of Finance, said in an April 17 interview in New Delhi. It directed state-owned lenders to slash gross bad loans this fiscal year to 1 percent of total assets from 4.1 percent in September.
“Narrowing margins and higher provisions for bad loans may put further pressure on SBI’s profitability,” said Nitin Kumar, a Mumbai-based analyst at Quant Broking Ltd. “It is a tough task to cut bad loans in the current economic environment.”
India’s gross domestic product may expand 5.7 percent in the fiscal year through March 2014, compared with the baseline projection of 5.5 percent for the previous 12 months, the RBI said in a statement on May 3.
The monetary authority has cut its benchmark repurchase rate three times this year as inflation measured by wholesale prices, the key gauge of costs in India, slowed to a 41-month low of 4.89 percent in April.