By Devidutta Tripathy
MUMBAI (Reuters) - State Bank of India (SBI) expects pressure from struggling borrowers to ease as the economy recovers after the strain on India's smaller firms pushed its bad debts higher in the three months to June.
A slightly wider bad loan ratio in the quarter, and a 53 percent sequential rise in new bad loans, hit shares in the country's largest bank by assets, sending them down nearly 5 percent on the day.
Indian banks have been hobbled by their heaviest bad loan burden in a decade as a prolonged economic slowdown squeezed companies' ability to service debt. That also choked new investments, lowering demand for bank credit.
SBI Chairman Arundhati Bhattacharya, who has been taking steps to reduce its pile of sour debt, said loans to smaller companies remained a problem area but mid-sized and large companies' accounts were stabilising.
"Overall I think the stress picture is much better. And with some amount of confidence I can say that the recovery is having a beneficial impact on the books," she told a news conference on Tuesday.
Lower provisions helped the bank, which is more than two centuries old, to report a better-than-expected 10.2 percent rise in quarterly profit to 36.92 billion rupees ($575.6 million) for the three months ended June 30.
But SBI's gross bad loans as a percentage of total loans rose marginally to 4.29 percent from 4.25 percent in the previous quarter, while its net bad loan ratio rose 12 basis points. New bad loans in the June quarter rose to 73.18 billion rupees from 47.69 billion rupees three months earlier -- although less than three quarters the level booked a year ago.
"People were building in a much better set of expectations than what came through," said Abhinesh Vijayaraj, a banking analyst at Spark Capital.
Shares in SBI, valued at more than $33 billion, closed 4.9 percent lower - their biggest single-day fall since late January - in a Mumbai market that fell 0.7 percent. The stock is down nearly 14 percent so far this year, underperforming the banking sector index and the main index.
($1 = 64.1400 rupees)
(Additional reporting by Karen Rebelo; Editing by Clara Ferreira Marques and Keith Weir)
