Bad loans to shackle state banks' 2013/14 profits; SBI net profit falls 13.6 pct

MUMBAI Mon Aug 12, 2013 6:12pm IST

Auto rickshaws wait in front of the head office of State Bank of India (SBI) in New Delhi August 12, 2013. REUTERS/Anindito Mukherjee

Auto rickshaws wait in front of the head office of State Bank of India (SBI) in New Delhi August 12, 2013.

Credit: Reuters/Anindito Mukherjee

Related Topics



MUMBAI (Reuters) - An increase in distressed loans, and the provisions to guard against them, are likely to eat into the profits of State Bank of India (SBI) this financial year and also hurt its smaller state-run rivals.

State-run SBI is India's largest lender and creditor to many major companies including Suzlon Energy (SUZL.NS) and Lanco Infratech (LAIN.NS). These firms and others in the infrastructure and manufacturing sectors have been hit as Asia's third largest economy grows at its slowest pace in a decade and regulatory hurdles hinder foreign investment.

Indian banks will also have to contend with rising interest rates and a likely increase in bad corporate loans after the Reserve Bank of India (RBI) introduced monetary tightening measures this quarter to bolster the rupee, which fell to a record low against the dollar last week.

"I can't see why financial 2014 should get better for SBI. Today, the asset quality pressures are huge, not for SBI alone, for the entire banking sector," said ASV Krishnan, banking analyst for Ambit Capital.

The current financial year ends on March 31, 2014.

A spurt of loan defaults and lower net interest income in the three months that ended June triggered the second consecutive drop in quarterly profit for SBI, sending its shares to their lowest since December 2011.

Most Indian state banks, including Bank of Baroda (BOB.NS), Punjab National Bank (PNBK.NS) and Bank of India Ltd (BOI.NS) also posted a spurt in bad loans.

SBI's loan troubles contrast with HDFC Bank (HDBK.NS), India's third largest private lender, which has maintained consistently strong growth due to its conservative lending strategies.

HDFC Bank's profits rose 30 percent in the first quarter, in line with its profit growth for every quarter in the last decade.

Net new additions to SBI's non-performing loans were around 90 billion rupees in the fiscal first quarter, above analysts' expectations of around 55-60 billion rupees.

Total bad loans were 5.55 percent of the bank's total book, up from 4.99 percent in the same year-ago period.

The bank had said in May it would restructure, or ease payment terms, on loans totalling up to $1 billion in 3-4 months. Figures for the June quarter were not available.

Last month, SBI's client Lanco started a process to restructure debt totaling $1.2 billion after economic weakness impacted the performance of some of its businesses such as power and engineering and construction.

"I expect the street to sharply downgrade earnings estimates for SBI for financial 2014. There is no catalyst for improvement," said Vaibhav Agarwal, banking analyst for Mumbai-based Angel Broking.

SBI missed estimates and posted on Monday a 13.6 percent drop in net profit to 32.41 billion rupees in the fiscal first quarter compared with 37.52 billion rupees a year ago.

Net interest income rose 3.5 percent to 115.12 billion rupees.

Analysts had expected a net profit of 36.2 billion rupees, according to Thomson Reuters I/B/E/S.

SBI shares ended down 3.5 percent at 1,605.35 rupees, after having dropped as much as 5.35 percent earlier.

(Reporting by Swati Pandey; Editing by Miral Fahmy)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Sino-Indian Ties


Eyeing Stocks

Eyeing Stocks

Interview - EPFO chief urges green light to buy stocks  Full Article 

Stimulus Reports

Stimulus Reports

China cenbank injects $81 bln into major banks to support economy - reports  Full Article 

Monsoon Update

Monsoon Update

Delayed retreat of monsoon rains to start this weekend  Full Article 

Fed Policy Meeting

Fed Policy Meeting

Fed could hint on rate-hike plans as it prepares for policy turn  Full Article 

Grim Outlook

Grim Outlook

Sony deepens loss estimate on struggling smartphone business  Full Article 

Sugar Surplus

Sugar Surplus

India to produce surplus sugar for fifth straight year - industry body  Full Article 

Business Sentiment

Business Sentiment

China, Singapore slowdown weigh on Q3 Asia business sentiment   Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage