State Bank Jumps as $4.7 Billion Bad-Loan List Beats India Peers

  • SBI’s watch list for loans under stress at 313 billion rupees
  • SBI posts biggest drop in profit in 5 years as provisions rise

State Bank of India, the country’s largest lender, jumped the most in more than two months after reporting a bad-loan watch list that’s smaller than its closest rivals.

Shares of the lender surged 6.4 percent to 195.90 rupees in Mumbai trading, paring this year’s losses to 13 percent. About 313 billion rupees ($4.7 billion) of State Bank’s loans are under stress and two-thirds of it could sour, Arundhati Bhattacharya, chairman of the bank said in a briefing in Kolkata on Friday, after it posted the biggest profit drop since 2011. That compares with ICICI Bank Ltd.’s 440 billion rupees.

About 2 percent of loans at State Bank, which accounts for one fifth of all credit in India, are at risk of souring even after a central bank audit prompted lenders to set aside higher provisions for bad loans. ICICI Bank last month warned that up to 10 percent of its loans could become non performing, while Axis Bank Ltd. predicts that more than 6 percent of loans may sour in coming quarters.

“Investors are pleasantly surprised as SBI’s watch list for stressed loans is lower than expected, ” Siddharth Purohit, a Mumbai-based analyst at Angel Broking Ltd. said by phone. “This hints that worst of asset quality pain is over for SBI.”

Net income for the Mumbai-based bank fell 66 percent to 12.6 billion rupees for the three months through March from 37.4 billion rupees a year earlier, the lender said in a Friday exchange filing. Profit missed the 18.3 billion-rupee average of analyst estimates compiled by Bloomberg.

Results from ICICI Bank and Axis Bank for the March quarter and comments from their top managers had fueled concerns that dud loans will continue to pile up in India’s banking system, even after pressure from a Reserve Bank of India audit had made them accelerate recognition of non-performing debt.

“While the non-performing loan issues may linger for another few quarters, we are expecting a stronger balance sheet and profit growth from next year” for SBI, Rethish Varma, head of research at Bengaluru-based Aditya Trading Solutions Ltd., said by phone. “The central bank’s audit will help the lenders to make a stronger comeback when the economy strengthens.”

Additional Provisions

State Bank’s gross bad-loan ratio widened to 6.5 percent from 5.1 percent in the previous quarter. Provisions for bad loans jumped 58 percent from December to 121 billion rupees by March, the filing showed.

The lender said it has “accordingly implemented” directives from the Reserve Bank of India to reclassify some loans as soured debt and to make additional provisions for it. About 90 billion rupees of bad loans in the quarter came from RBI’s audit, Bhattacharya said.

In December, Reserve Bank of India Governor Raghuram Rajan set lenders a March 2017 deadline to clean up their balance sheets as he tries to reduce lenders’ stressed assets, which amounted to 11.3 percent of total assets by September, a 14-year high, central-bank data show.

SBI’s net interest income, or revenue from lending minus payments on deposits, rose 3.9 percent to 147 billion rupees. The lender’s capital-adequacy ratio stood at 13.1 percent, its filings showed, compared with a requirement of at least 9 percent under global Basel III rules.

The lender has decided to seek government approval to acquire its five subsidiaries -- State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore -- an exchange filing showed on May 17. The merger will have no negative impact on capital ratio or asset quality of the bank, Bhattacharya said in the briefing.

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