State Bank of India, the country's largest lender, posted a second-straight surge in quarterly net profit on strong loans growth, beating the street expectations, but a rise in the bad loans has pulled its shares down.
The results show that the government-owned SBI's efforts to clean up its books since last year are yet to pay off and it is yet to bridge the gap between the quality of its earnings and those of the private sector lenders such as ICICI Bank and HDFC Bank .
Government-owned lenders account for 70% of the market in India but their lending decisions are not always driven by commercial considerations. State-run banks last month reported a spike in bad loans for the June quarter, while the private lenders showed stable asset quality.
SBI's net profit more than doubled to Rs 3,752 crore from Rs 1,584 crore a year earlier. Analysts, on average, had expected a net profit of Rs 3,617 crore.
Its non-performing loans rose to nearly 5% at end-June from 3.5% a year earlier but provisions, or the funds set aside for bad loans and contingencies, were down 41% to Rs 2,560 crore.
SBI shares were down 4.5% on Friday afternoon, in a Mumbai market that was down 0.4%.
Net interest income, or the difference between interest earned and interest expended, rose 14.6% to Rs 11,119 crore.
Standard Chartered said in a post-earnings note SBI's new bad loans at end-June were at a record Rs 10,840 crore compared to the Rs 5,500 crore guidance given by the management.
SBI, in which the government owns about a 60% stake, had posted an improvement in its bad debts in the March quarter. Its shares have risen by a third from lows hit in December, about double the broader market's rise.
But, with a slowdown of India's economy accelerating and its monsoon rains failing, things might get tricky again. Earlier in the day UBS downgraded the bank to "sell" from "buy" saying a weak monsoon would add to its already high bad loans.
The International Monetary Fund has sharply downgraded growth estimates for India to 6.1% this fiscal year and 6.5% in the next.
SBI's exposure to embattled Kingfisher Airlines and Air India is also causing some nervousness to investors.
Highlights for the quarter under review:
- Gross NPA at 4.99% vs 4.44% q-o-q
- Net NPA at 2.22% vs 1.82% q-o-q
- Gros NPA at Rs 47,156 cr vs 39,676 cr q-o-q
- Net NPA at Rs 20,321 cr vs Rs 15,818 cr q-o-q
- CAR at 11.53% vs 12.04% q-o-q