State Bank of India's Profit Rises as Bad-Loan Ratio Narrows

  • State Bank of India's sour-debt ratio narrows to 4.15%
  • Bank of Baroda, ICICI had reported wider bad-loan ratios

State Bank of India, the country’s largest lender by assets, posted a 25 percent increase in second-quarter profit as it boosted interest income and curtailed soured debt. Its shares rose the most in almost three months.

Net income climbed to 38.8 billion rupees ($590 million) in the three months ended Sept. 30 from 31 billion rupees a year earlier, the Mumbai-based lender said in an exchange filing Friday. Its gross bad-loan ratio narrowed to 4.15 percent from 4.29 percent in June, in contrast to rivals Bank of Baroda and ICICI Bank Ltd., which reported increased ratios for the September quarter.

Chairman Arundhati Bhattacharya is seeking to keep stressed assets at the state-controlled bank in check and bolster earnings amid sluggish economic growth. The lender sold 4 billion rupees of soured debt to asset-reconstruction companies in the September quarter and the bank was able to recover more bad loans, Bhattacharya told reporters at a briefing following the earnings report.

“SBI has managed to cut down the bad-loan ratio even in a tough operating environment,” Karthikeyan P, a Chennai-based banking analyst at Cholamandalam Securities Ltd., said by phone. “The worst in terms of asset quality seems to be over for the bank.”

The pace of bad-loan formation had also slowed, Bhattacharya said at the briefing. Since assuming her post in October 2013, the chairman has tightened requirements for corporate lending and pushed to increase credit to consumers for homes and autos, where defaults are lower. She helms a panel of SBI bankers who work on recovering stressed assets above 5 billion rupees.

Beating Estimates

Shares of the lender rose 3.9 percent, the most since Aug. 17, to 243 rupees in Mumbai, paring this year’s losses to 22 percent. The S&P BSE India Bankex index, which tracks 10 lenders, has slumped 9.1 percent this year.

State Bank’s quarterly net income beat the 36.2 billion-rupee average of 30 analyst estimates compiled by Bloomberg. Interest income in the period rose 9 percent from a year earlier, the lender’s filing showed.

Net income at Bank of Baroda, the country’s second-largest lender by assets, dropped 89 percent in the September quarter from a year earlier to 1.24 billion rupees, an exchange filing showed Friday. The lender more than doubled its bad-loan provisions from the previous year to 18.9 billion rupees as stressed assets rose, the filing shows.

Improving Outlook

State Bank’s provisions for soured credit rose by 14 percent from the previous quarter, it said.

A revival in India’s economy may improve loan demand and strengthen borrowers’ ability to repay, further improving the outlook for a lender that has more than 16,000 branches. The Reserve Bank of India, which started the year with two unscheduled interest-rate cuts, lowered its benchmark repurchase rate by half a percentage point to 6.75 percent on Sept. 29.

“The expected revival in the economy, along with easing borrowing costs, will help in strengthening earnings going ahead,” Cholamandalam’s Karthikeyan said.

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