State Bank of India, the country’s largest by assets, posted first-quarter profit that dropped more than analysts estimated as bad loans climbed amid a slowdown in Asia’s third-largest economy.
Net income fell 14 percent to 32.4 billion rupees ($534 million), or 47.38 rupees a share, for the three months ended June 30, from 37.5 billion rupees, or 55.91 rupees, a year earlier, the Mumbai-based lender said in an exchange filing today. That compared with the 34.2 billion-rupee average of 42 estimates compiled by Bloomberg.
Shares of State Bank fell to their lowest in more than a year and a half on concern that more defaults may erode profit as the economy slows. The Reserve Bank of India’s measures starting last month to halt a slide in the rupee by curtailing money supply may weaken the pace of expansion in India, where output grew last year at the slowest rate in a decade.
“Asset quality remains the major concern,” Vishal Narnolia, a Mumbai-based banking analyst at SMC Global Securities Ltd., said by telephone. “The profits from investments in stock and government debt weren’t enough to make up for the surge in bad loans.”
State Bank was the worst performer today on the S&P BSE Bankex index, which tracks 13 lenders. The shares, which have dropped 32 percent this year, fell 3.1 percent as of 3:03 p.m. to 1,612.20 rupees, the lowest in intraday trading in Mumbai since January 2012. That compared with a 1.1 percent gain in India’s equity benchmark S&P BSE Sensex index today.
Total outstanding loans at SBI increased by 16 percent to 11 trillion rupees at the end of June. Credit growth at Indian banks decelerated to 13.7 percent in the twelve months to June 28, the slowest pace since 2009, data compiled by the RBI shows.
The bank will focus on lending to individuals as the demand for credit from companies is falling, Chairman Pratip Chaudhuri said in an interview in May. The lender is also taking measures to bring down soured debt by offering incentives to employees who recover bad loans, Chaudhuri said.
State Bank’s gross bad loans expanded to 5.6 percent of the total by the end of June, from almost 5 percent a year earlier, the filing showed. The measure at ICICI Bank Ltd., the second-largest by assets, was 3.23 percent as of June 30.
India’s central bank began taking emergency steps to tighten liquidity on July 15 by boosting the bank rate and the marginal standing facility to 10.25 percent after the rupee fell to what was a record low against the dollar. A week later, it followed up by further limiting banks’ borrowing and raising the daily balance requirement for the cash reserve ratio.
The Reserve Bank of India on July 30 cut its economic growth forecast for the year through March 2014 to 5.5 percent from 5.7 percent. The central bank also indicated that day that the liquidity measures would be rolled back when the currency stabilizes.
The rupee’s further decline to an all-time record on Aug. 6 prompted the RBI, two days later, to introduce additional measures to remove cash from the financial system.
Increasing rates will put pressure on banks’ asset quality and earnings as it drives up their funding costs, Moody’s Investors Service said in a July 22 note.
“State Bank of India is relatively well placed to grow its loan book in this tight-money scenario,” Hatim Broachwala, a Mumbai-based banking analyst at Karvy Stock Broking Ltd., said before the announcement. “They are in a comfortable liquidity situation compared to many other lenders and better placed to deal with the rise in money market rates.”
The lender’s net interest margin, a measure of lending profitability, for domestic operations on a cumulative basis was 3.44 percent, it said today, without providing a year-earlier figure. Net interest income, or revenue from lending minus payments on deposits, rose 3.5 percent from a year earlier to 115 billion rupees.