MUMBAI State Bank of India predicted its credit growth will accelerate in the next financial year driven by funding for new government projects, as the nation's top lender by assets reported its first rise in quarterly profit in more than a year.
The bank, which accounts for more than a fifth of India's banking assets, also expects to keep incremental bad loans within its previously stated guidance of 400 billion Indian rupees ($5.98 billion) for the current fiscal year to the end of March, Chairman Arundhati Bhattacharya said on Friday.
Core banking activities, including lending, have been hit by the government's shock cancellation in November of 86 percent of the country's currency in circulation in high-value banknotes. A cash crunch also hit economic activity.
Including the impact of the so-called demonetisation, SBI further cut its lending growth guidance for the current fiscal year to March to 6.5 percent. It, however, sees loans growing at nearly double the pace at 11 percent during the next financial year beginning in April, Bhattacharya said.
"We are seeing a large number of projects of the government which were on the drawing board now beginning to get bid out," Bhattacharya told a news conference, adding she saw prospects in sectors including roads, railways, power transmission and renewable energy.
The government's focus on low-cost housing will also help drive loan demand next year, she said.
SBI, which on Friday reported its third-quarter net profit more than doubled to 26.1 billion rupees, beating market expectations, on lower provisions for bad loans, expects no significant deviation on its guidance for additions to sour assets this fiscal year.
"The fact of the matter is that chunky pieces are obviously out of the way. But overall stress reducing will only happen when we see the economy doing much better," Bhattacharya said.
Gross bad loans as a percentage of total loans rose slightly to 7.23 percent at the end of December, from 7.14 percent at end-September, SBI said. Provisions for bad loans fell to 72.44 billion rupees from 76.7 billion rupees in the September quarter and 76.45 billion rupees a year earlier.
Bad loans in India's banking sector were at a record high of $133 billion as of end-September. While SBI has fared better than its state-run peers in managing its sour assets, investors remain wary with the bank's heavy exposure to stressed industries such as steel and power.
Bank of Baroda, the second-biggest state-run lender, also reported on Friday a net profit of 2.53 billion rupees for the three months to December, compared with a loss a year earlier. Its bad loan ratio ticked up to 11.4 percent in December.
($1 = 66.8900 Indian rupees)
(Reporting by Devidutta Tripathy; Editing by Himani Sarkar and Elaine Hardcastle)