State Bank of India’s Shares Slump as Bad Loans Gather Pace

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State Bank of India, the country’s largest lender by assets, slumped the most since January as more loans turned bad last quarter than in the previous three months even as profit beat estimates.

Net income rose 10 percent in the three months ended June 30 to 36.9 billion rupees ($575 million) from a year earlier, boosted by lower provisions for bad loans, SBI reported Tuesday. While that beat the 34 billion-rupee median of 28 analyst estimates compiled by Bloomberg, loan slippages climbed 54 percent from end-March, raising concerns over bad debt.

“Investors expecting an improvement in asset quality were disappointed,” Karthikeyan P, a Chennai-based banking analyst at Cholamandalam Securities Ltd., said by phone. “While a fall in provisions for nonperforming assets supported profit growth in the quarter, the fears regarding further pain in asset quality still linger.”

The Mumbai-based lender, led by Chairman Arundhati Bhattacharya, joined rival Bank of Baroda in reporting a larger ratio of soured credit. Policy makers’ efforts to boost the economy have yet to ignite credit growth at Indian banks, which is sputtering near the slowest pace since 1994.

Shares of SBI fell 4.9 percent, the most since Jan. 30, to 268.80 rupees in Mumbai, after rising as much as 2.4 percent earlier. The S&P BSE India Bankex Index, which tracks 10 lenders, sank 1.5 percent.

Provisions Fall

In the June quarter, the bank saw 73.2 billion rupees of consumer and farm loans that went sour, compared with 47.7 billion rupees as of March 31. Bad-loan formation is always high for SBI in the June quarter due to seasonal factors, Bhattacharya told reporters in Mumbai on Tuesday. The figure was 99.3 billion rupees a year earlier.

Gross non-performing-asset ratio widened to 4.29 percent from 4.25 percent in March, while provisions for soured debt fell 28 percent to 33.6 billion rupees from the previous quarter, exchange filings showed. SBI’s bad-loan ratio for the June quarter compares with the 4.13 percent reported by Bank of Baroda on July 30.

SBI’s net interest margin narrowed to 2.99 percent in the June quarter from 3.13 percent a year earlier, an analyst presentation following the earnings showed, as the bank cut its base rate and loan growth slowed. Gross advances grew by 6.6 percent to 13.1 trillion rupees in the year to June 30, SBI said in a press statement.

Its capital-adequacy ratio stood at 12 percent, compared with a central bank requirement of at least 9 percent under global Basel III rules. State Bank got shareholder approval in February to raise as much as 150 billion rupees in a stock offering to boost its capital ratio.

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