State Bank of India posted its first profit increase in six quarters as the country’s largest lender by assets boosted lending and contained bad credit.
Net income climbed to 33.5 billion rupees ($545 million), or 44.86 rupees a share, in the three months ended June 30, from 32.4 billion rupees, or 47.38 rupees, a year earlier, the Mumbai-based lender said in an exchange filing today. Profit exceeded the 32.5 billion-rupee median of 31 analyst estimates compiled by Bloomberg.
Shares of the 208-year-old lender surged 40 percent in the three months through June, the most in almost four years, as investors bet on Chairman Arundhati Bhattacharya reining in bad loans and newly elected Prime Minister Narendra Modi spurring India’s economy. The nation’s growth will strengthen this fiscal year, the government forecasts.
“Growth in income from loans and improving asset quality is driving the profit growth,” Asutosh Kumar Mishra, a Mumbai-based banking analyst at Karvy Stock Broking Ltd., said by phone. Still, investors are waiting to be convinced that improvements in asset quality will be sustained, he said.
SBI shares fell 0.8 percent to 2,417 rupees at 1:32 p.m. in Mumbai trading, less than the 1.3 percent decline in the S&P BSE Sensex index.
The bank’s gross bad-loan ratio narrowed to 4.9 percent from 5.56 percent a year earlier. That’s still the highest among the country’s five largest lenders by assets. For all Indian banks, the level was 4 percent in March, down from a six-year high of 4.2 percent in December, according to a Reserve Bank of India report.
In an interview last month, Bhattacharya, 58, said that SBI is pushing large corporate borrowers that have defaulted or are under stress to make repayments to the bank by tapping equity markets and selling non-core assets. She leads an SBI panel that tries to recover sour loans of more than 5 billion rupees.
India’s finance ministry predicts the economy will expand as much as 5.9 percent in the fiscal year through March 2015, up from 4.7 percent. That may help to spur banking-industry loan growth, which this year touched the weakest levels since the global crisis.
SBI’s outstanding loans increased 13 percent to 12 trillion rupees in June from a year earlier, exchange filings showed. The lender’s capital-adequacy ratio stood at 12.3 percent, the filings showed, compared with a central bank requirement of at least 9 percent under Basel III rules.
The bank is considering share sales in its insurance and asset-management units to raise money, Bhattacharya said in the July interview. SBI needs more than 800 billion rupees of additional equity capital by 2019 to meet Basel requirements.