mumbai 08 10, 2012, 20:10 IST
Bad loans at State Bank of India (SBI) were nearly double expectations, taking the sheen off a second straight surge in quarterly net profit and sending its shares to a three-month low.
Problem lending hit a record level as India's worst economic slowdown in almost a decade and deficient monsoon rains clouded recovery prospects at the country's largest lender, which has been trying to clean up its book since last year.
"Stress in the economy is evident. It's a reality. We had thought our slippages had peaked and we are obviously not happy about the slippages we have brought now," SBI's chief financial officer Diwakar Gupta told reporters.
"We do expect a huge amount of upgrades in coming quarter," he said, referring to a possible recovery in bad loans helped by federal government policy moves to revive the economy.
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The state-owned bank, which is exposed to embattled Kingfisher Airlines and Air India , said new bad loans hit 108.4 billion rupees at end-June, against guidance of 55 billion.
Chairman Pratip Chaudhuri said the bank expected this to fall to 30 billion rupees in this quarter.
Analysts said SBI had yet to bridge the gap between its quality of earnings and those of private sector lenders such as ICICI Bank and HDFC Bank .
For graphic on Indian banks performance and bad loans: click https://bsmedia.business-standard.comlink.reuters.com/zyn89s
For Starmine data set on banks: click http://link.reuters.com/xuw89s
SBI shares fell as much as 4.7 percent to their lowest level since May 18 before closing down 4.1 percent. The stock has fallen 8.4 percent in two days, wiping $2 billion from its market value.
Net profit for the fiscal first quarter more than doubled to 37.52 billion rupees compared with 15.84 billion a year earlier and analysts' forecasts of 36.17 billion.
But net bad loans rose to 2.2 percent of all lending compared to 1.6 percent a year ago.
"The numbers are overall reflective of the weak macro economic trends...for the next couple of quarters at least, asset quality concerns are likely to continue," Angel Broking said in a research note.
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 (IMF) has sharply downgraded growth estimates for India, Asia's third-biggest economy, to 6.1 percent this fiscal year and 6.5 percent in the next.
BAD LOANS WEIGH
Government-owned lenders account for 70 percent of the market in India but their lending decisions are not always driven by commercial considerations.
Despite the worsening Indian economic outlook, SBI retained its 16-18 percent loan growth target for this fiscal year driven by demand for loans from large firms and car and home buyers.
"We have slightly toned down expansion of business in our mid-corporates group because we are seeing some stress there," Chaudhuri said.
The bank's net interest income rose 14.6 percent to 111.19 billion rupees. Provisions, or the funds set aside for bad loans and contingencies, were down 41 percent.
The net interest margin, a key gauge of profitability, fell to 3.57 percent in the quarter from 3.62 percent a year ago. The banks expects to achieve its forecast of 3.75 percent margins for this fiscal year ending in March 2013.
(Writing by Sumeet Chatterjee; Editing by Murali Anantharaman and David Cowell)