State Bank of India Profit Exceeds Analyst Estimates

(Bloomberg) -- State Bank of India reported fourth- quarter profit rose 46 percent to a record, exceeding analysts’ estimates, as lower lending rates lured borrowers and gains from trading grew more than fivefold.

Net income rose to 27.4 billion rupees ($556 million), from 18.8 billion rupees a year earlier, the nation’s largest bank said in a statement to the Bombay Stock Exchange today. That beat the 21.7 billion rupee median estimate of five analysts surveyed by Bloomberg.

Chairman Om Prakash Bhatt aims to raise loans and deposits 25 percent this year, after taking market share in the 12 months ended March 31 as people concerned about the financial strength of overseas and private-sector banks fled to the government-controlled lender. The company, which accounts for a fifth of the nation’s banking system, increased credit 30 percent last year after reducing borrowing costs.

“With the government spending likely to revive economic growth, lending may surge in the coming quarters,” said A. Balasubramaniam, chief investment officer of Birla Sun Life Asset Management Co., which manages assets of about $9.6 billion.

State Bank, which is 59 percent-owned by the government, will need 500 billion rupees to 700 billion rupees over the next five years, Bhatt said in Kolkata today. This year, the Mumbai- based bank, which will add 1,000 branches, plans to raise 160 billion rupees to 170 billion rupees, he said, without providing additional details.

Stock Performance

Shares of State Bank fell 3.3 percent to 1,324.55 rupees yesterday in Mumbai trading. The stock has gained 3 percent this year, compared with a 23 percent advance in India’s benchmark Sensitive Index and a 10 percent climb in the Bombay Stock Exchange’s banking index.

Net interest margin, a measure of lending profitability, shrank to 2.93 percent by the end of March from 3.07 percent a year earlier, the bank said in an e-mailed statement.

“I expect the net interest margin to remain stable this quarter, and rise thereafter,” Bhatt said. Deposits, which climbed 38 percent last year, won’t sustain their growth momentum this year as investors return to the equity and real estate markets, he said.

State-run banks lured more borrowers than overseas banks and private-sector rivals during the quarter after they made the steepest cuts in borrowing costs, spurred by calls from the finance ministry and central bank to revive credit demand and stoke an economy growing at the slowest pace in six years.

Profit from State Bank’s treasury operations, which include trading in bonds and currencies, climbed to 15.1 billion rupees during the quarter from 2.96 billion rupees a year earlier.

Loan Defaults

State Bank’s gross non-performing assets climbed 21 percent to 155.9 billion rupees from 128.4 billion rupees a year earlier, according to the statement. Gross bad debt as a percentage of loans narrowed to 2.84 percent, from 3.04 percent a year earlier.

Closest rival ICICI Bank Ltd. last month posted a 35 percent decline in fourth-quarter earnings, the steepest fall in quarterly profit in more than six years, as it set aside more funds for bad debt and curbed loans to avoid defaults. ICICI shares have gained 16 percent this year, after posting a 64 percent drop in 2008.