MUMBAI: State Bank of India, the country’s largest lender by assets, fell sharply after reporting a surprise jump in bad loans, depressing profits.
Net income dropped 20 per cent to Rs20 billion ($313 million), or Rs2.44 a share, in the three months ended June from Rs25.2 billion, or Rs3.25, a year earlier, the Mumbai-based lender said in a filing on Friday. That fell well short of the Rs29.6 billion mean estimate of 14 analysts surveyed by Bloomberg.
The increase in bad loans “was way higher than investor expectations” and stemmed from SBI’s merger with six smaller Indian lenders earlier this year, said Hatim Broachwala, a Mumbai-based analyst at Nirmal Bang Institutional Equities. “Management need to effectively address asset quality concerns,” he added.
Shares of the lender fell 5.4 per cent to Rs280.95 at 1:40pm in Mumbai trading, paring this year’s gain to 12.2 per cent. The S&P BSE India Bankex Index, which tracks 10 lenders, is up 31 per cent this year.
Under Chairman Arundhati Bhattacharya, whose four-year tenure at the bank is ending in October, SBI has struggled to boost profits and curtail bad debt. Loans have soured as a result of a slump in the commodity prices and a dip in India’s economic growth. After merging with the smaller lenders, SBI raised $2.3 billion of additional capital earlier this year.
Gross bad loans rose to 10 per cent of total lending from 7 per cent in the previous quarter. Provisions for bad debt rose 10 per cent to Rs121 billion.
Merger Effects
SBI said the headline results weren’t comparable with the previous year due to the merger with the smaller lenders. After the move, SBI has a network of about 24,000 branches and entered the ranks of the top 50 banks in the world by assets.
