State Bank of India Rises as Default Ratio Beats Estimates

Shares of State Bank of India, the country’s largest lender by assets, rose the most in almost two weeks after its bad-loan ratio widened less than analysts had estimated during the second quarter.

The gross ratio of sour debt to total lending widened to 5.64 percent in the three months to Sept. 30 from 5.15 percent a year earlier, the Mumbai-based bank said in an exchange filing today. Net income in the period fell 35 percent to 23.8 billion rupees ($375 million) as provisions for defaults rose 44 percent.

“The rise in bad loans was lower than what investors expected,” Vishal Narnolia, a Mumbai-based analyst at SMC Global Securities Ltd. said by phone, adding that the market consensus was for a ratio of more than 6 percent. “The lender has also pro-actively increased provisions on stressed assets. Investors are finding comfort in this.”

The lowest profit in nine quarters underscores the challenges faced by Chairman Arundhati Bhattacharya, the first woman to lead the bank, in curbing bad loans and boosting capital ratios in a slowing economy. The bank will take measures to bolster earnings by improving the recovery of soured debt, Bhattacharya said Oct. 8, the day after she took office.

Shares of SBI rose 1.4 percent to 1,697.05 rupees, the biggest increase since Nov. 1, at the close of Mumbai trading. The stock slumped 29 percent this year, surpassing the S&P BSE Bankex Index’s 16 percent drop.

More Loans

The bank’s net interest income, or revenue from lending minus payments on deposits, rose 12 percent to 123 billion rupees. Total outstanding loans rose 19 percent to 11.4 trillion rupees at the end of September from a year earlier.

Loans at Indian lenders grew 16.7 percent in the 12 months to Oct. 18, fortnightly central bank data show. That compares with an 18.2 percent expansion in the year to Sept. 6, which was the fastest pace in 15 months.

Second-quarter earnings fell to 34.7 rupees a share from 54.5 rupees a year earlier, SBI said today. Provisions for bad loans were 26.5 billion rupees in the period, compared with 18.4 billion rupees a year ago.

The bank’s profit growth for the two previous quarters fell at least 13 percent from the year-earlier periods amid rising provisions for sour debt, exchange filings showed. SBI will continue in coming months its “war on bad loans,” which will fall sustainably only when the country’s economy expands at a faster pace, Bhattacharya said Oct. 8.

Capital Ratio

India’s economy may grow 4.8 percent in the year through March 2014, based on a compilation of forecasts from other organizations, the RBI said in an Oct. 28 report. That would be the slowest pace since 2003, and compares with a July projection of a 5.7 percent expansion.

SBI’s capital adequacy ratio, according to the so-called Basel III rules, stood at 11.69 percent as of Sept. 30, exchange filings showed. ICICI Bank Ltd., India’s largest private lender by assets, had a capital ratio of 16.5 percent, stock exchange filings showed.

India’s government will infuse 20 billion rupees into SBI as part of a 140-billion rupee recapitalization of state-run banks in the year ending March 31, Rajiv Takru, the Finance Ministry’s banking secretary, said on Oct. 23. The investment will allow SBI to raise another 17 billion rupees by selling shares to institutional investors without reducing the government’s stake, Takru said.

Before it's here, it's on the Bloomberg Terminal.