State Bank of India Profit Beats Estimates as Bad Loans Fall

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State Bank of India, the country’s largest lender by assets, reported profit that beat estimates as bad loans fell and interest income rose. Shares reversed gains as fine print showed new restructured debt picked up pace.

Net income climbed 23 percent from a year earlier to 37.4 billion rupees ($589 million), or 5.01 rupees a share, in the three months through March 31, the Mumbai-based lender said Friday. That beat the 35 billion-rupee median of 26 analyst estimates compiled by Bloomberg.

The result underscored Chairman Arundhati Bhattacharya’s progress in bolstering profit by curtailing soured loans while boosting credit growth. SBI joins Bank of Baroda, India’s second-largest lender by assets, in bucking a trend of increases in bad debt at the country’s banks. The stock surged as much as 5.1 percent before giving up the gains.

“The sharp improvement in asset quality surprised most investors,” Hatim Broachwala, a banking analyst at Nirmal Bang Institutional Equities Ltd. in Mumbai, said by phone. “We’ll wait for another quarter to see whether this improvement is sustainable.”

State Bank’s gross bad-loan ratio narrowed to 4.25 percent from 4.9 percent reported in December, the bank said in an exchange filing. Provisions for soured debt fell by 21 percent from a year earlier. The lender restructured loans worth 118 billion rupees in the March quarter, Bhattacharya said.

Restructured Loans

“Addition of restructured loans at SBI in March quarter was more than double of what management had guided for,” said P. Karthikeyan, a Chennai-based analyst at Cholamandalam Securities Ltd. “This is dragging down the shares inspite of the fall in bad-loan ratio.”

The shares fell 2.7 percent to 282.45 rupees in Mumbai trading on Friday, extending this year’s decline to 9.5 percent. The S&P BSE India Bankex, which tracks 12 lenders, has slipped 1.2 percent in 2015.

The bank’s total outstanding loans climbed 7 percent from a year earlier to 13.4 trillion rupees in March, the report showed. Net interest income, or revenue from lending minus payments on deposits, rose 12 percent to 550 billion rupees.

“Stress is lesser in the economy now,” Bhattacharya said. “The trend of non-performing asset formation in easing. We are seeing a lot of recoveries.”

Soured debt in India’s banking system reached 4.79 percent of total loans at the end of 2014, the highest in at least eight years, central bank data show. Bank of Baroda narrowed its gross bad-debt ratio to 3.72 percent in the quarter ended March from 3.85 percent in the December quarter, an exchange filing showed.