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State Bank of India shares drop as profit tumbles on bad loans

State Bank of India shares dropped to the lowest in five months after the country’s largest lender posted a bigger decline in third-quarter profit than analysts had estimated amid rising bad loans.

Net income fell 34 per cent to Rs22.3 billion ($359 million), or Rs32.66 a share, for the three months ended on December 31, from Rs34 billion, or Rs50.61, a year earlier, the Mumbai-based lender said in an exchange filing on Friday. The lowest profit in nine quarters missed the Rs25.2 billion median of 38 estimates compiled by Bloomberg.

The falling profit underscores the challenge Chairman Arundhati Bhattacharya faces in curtailing swelling defaults as India’s economic slump and rising interest rates dent borrowers’ ability to repay loans. The 207-year-old lender raised more than Rs100 billion last month to boost capital buffers by selling shares to investors including the government.

“Non-performing assets are weighing down the bank’s profit and capital adequacy ratio,” Hatim Broachwala, a Mumbai-based banking analyst at Karvy Stock Broking Ltd, said by telephone. “Investors will be concerned until the stressed assets are contained.”

India’s economy will grow 4.9 per cent in the 12 months through March 31, compared with the decade-low 4.5 per cent in the previous fiscal year, the Statistics Ministry said on February 7.

Shares of SBI fell 2.8 per cent to Rs1,459, the lowest since September 4 in intraday trading, at 1:48pm in Mumbai. The stock has dropped 17 per cent this year.

The bank’s gross bad loans rose to 5.73 per cent of the total by the end of December, from 5.3 per cent a year earlier, the filings showed. Its 5.64 per cent soured-debt ratio as of September 30 was the highest among the five largest government- controlled banks by assets, according to filings.

Provisions for bad loans rose 24 per cent from last year to Rs35 billion, State Bank said today.

“We expect weakness in banks’ asset quality to persist for the next 12 months,” Amit Pandey, a Singapore-based analyst at Standard & Poor’s, said in a February 10 e-mailed statement. “The economic recovery is likely to be tepid, and it will take time for the domestic industry to recover and corporate balance sheet leverage to decline.”

India’s slowing economy and the highest borrowing costs among major Asian economies are triggering more defaults. The ability of most companies to generate cash and service debt is at the lowest level in five years, Deep Narayan Mukherjee, a Mumbai-based director at the Indian unit of Fitch Ratings Ltd, said in a January 15 interview.

SBI’s capital adequacy ratio under Basel III guidelines narrowed to 11.59 per cent as of December 31, from 11.69 per cent at the end of September, the filings showed.

The lender raised Rs80.3 billion from selling equity to institutions, according to a January 30 statement.