MUMBAI (Reuters) - Bank of Baroda Ltd increased bad debt provisions by 66 percent in the third quarter, contributing to a big drop in profits, and the bank said bad loan growth would remain a problem in the short term.
Bank of Baroda Executive Director Ranjan Dhawan said on Friday bad loans were difficult to contain and their growth was unlikely to slow significantly in the next two quarters.
The state-controlled bank, India's second-biggest lender by assets, reported a 69 percent fall in quarterly profit also due to the impact of an increase in tax expenses. Its shares fell more than 10 percent in their biggest single-day fall in seven years.
India's more than two dozen state-run banks, which account for more than 70 percent of advances, have long been constrained by bad loans, mainly due to a slowdown in the country's economic growth in the past two fiscal years. This has pulled their profitability well below private-sector rivals.
State banks recorded their highest-ever level of stressed loans in September at 12.9 percent of total advances. The same ratio in the private sector was just 4.4 percent, latest central bank data showed.
India's growth slipped below 5 percent in the past two fiscal years in its weakest performance for a quarter of a century. Growth is forecast to revive this fiscal year and next.
ICICI Bank Ltd, the biggest private sector lender, which also reported on Friday, said quarterly net profit rose 14 percent to a record. But it also said bad loans rose and provisions were 41 percent up from a year earlier.
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Managing Director Chanda Kochhar said improvement in asset quality for the banking industry was still two to three quarters away. "The positive impact on the asset quality for the banking sector comes with a lag to whatever is happening to the economy," she said.
Bank of Baroda said net profit reached 3.3 billion rupees ($53.45 million) in the fiscal third quarter ended Dec. 31, from 10.5 billion rupees a year earlier.
Net bad loans as a percentage of net advances was 2.21 percent, from 1.74 percent in the second quarter.
Provisions for bad loans rose 66 percent from a year earlier to 12.6 billion rupees, while tax expenses doubled.
Bank of Baroda shares closed 11.1 percent lower in their biggest single-day fall since January 2008. ICICI fell 5.2 percent in its biggest single-day fall since September 2013.
India's main banking index has doubled in the past year on hopes that a pick-up in the economy will aid loan growth and contain bad loans.
($1 = 61.7451 Indian rupees)
(Reporting by Devidutta Tripathy; Additional reporting by Indulal PM; Editing by Christopher Cushing and Jane Merriman)