State Bank of India (SBIN) shares had their biggest drop in almost six months as the lender said delinquent loans may rise after reporting better-than-estimated earnings that were overshadowed by a jump in provisions.
Shares of India’s biggest bank fell 6.8 percent to 1,862.05 rupees as of the 3:30 p.m. close. Net income rose 12 percent to 28.1 billion rupees ($564 million) for the three months ended Sept. 30, the lender said today, beating the 25.2 billion rupee median of estimates compiled by Bloomberg.
The higher bad-loan ratio and increase in funds set aside for defaults may hamper efforts by Chairman Pratip Chaudhuri, who took the helm in April, to raise capital and meet regulatory requirements. Moody’s Investors Service downgraded the outlook for India’s banking system to negative today, citing concerns that global economic turmoil and a domestic slowdown may trigger defaults and curb profitability.
“Investors are worried about the spike in bad loans,” Alex Mathews, head of research at Geojit BNB Paribas Financial Services Ltd., said by telephone. “The bad-loan figures are in line with the concerns raised by Moody’s today.”
The lender’s gross non-performing assets rose to 4.19 percent of total debt in the quarter from 3.35 percent a year earlier, the bank said in the statement to exchanges today. Bad- loan provisions jumped 35 percent to 29.2 billion rupees.
Loan Stress
“Going ahead there is a possibility of increase in the non-performing assets,” Chaudhuri, 58, told reporters in Mumbai today. “Loans to companies and the agricultural sector are seeing stress as of now.”
Net interest income, or revenue from borrowers after deducting interest paid to depositors, rose 31 percent to 259.7 billion rupees last quarter from 198.08 billion rupees a year earlier. Net interest margin, a measure of lending profitability, widened to a record 3.79 percent from 3.43 percent.
Loans at the lender, based in Mumbai, climbed 17 percent to 8.1 trillion rupees as of Sept. 30, State Bank said. India’s outstanding bank loans climbed 21 percent in the 12 months to Sept. 30, according to data compiled by the central bank.
Shares of State Bank have dropped 33 percent this year, more than double the decline in the BSE India Sensitive Index, on concern that the steepest increases in borrowing costs among major Asian economies may spur defaults. The central bank has raised borrowing costs by 375 basis points since March 2010 in the fastest round of increases since the Reserve Bank of India was established in 1935, Bloomberg data show.
Economy Slowing
“India’s economic momentum is slowing because of high inflation, monetary tightening, and rapidly rising interest rates,” said Vineet Gupta, a senior analyst at Moody’s in Singapore. “At the same time, concerns have emerged over the sustainability of the recovery in the U.S. and Europe, and the rise in the borrowing program of the Indian government, which could drain funds away from the private credit market.”
Moody’s downgraded State Bank’s financial-strength rating last month, citing rising bad debts. The company’s Tier 1 capital ratio “provides an insufficient cushion” to boost lending and to absorb higher credit costs as defaults climb, it said at the time.
The government has given an “assurance” to invest about 40 billion rupees into the bank to shore up capital, Chaudhuri said today. India will inject more than 30 billion rupees into State Bank to support its growth, a finance ministry official told reporters in New Delhi on Nov. 1.
Capital Infusion
State Bank has been in talks with the government for a capital infusion of about 200 billion rupees since at least February 2010 as it seeks funds to meet credit demand in Asia’s second-fastest growing major economy.
The bank reported an overall capital ratio of 11.4 percent and Tier 1 capital ratio of 7.47 percent as of Sept. 30. The Tier 1 ratio is below the 8 percent that the government targets for the state-run lenders. Chaudhuri said today that the ratio is poised to reach 9 percent by March.
ICICI Bank Ltd., India’s second-largest lender by assets, had Tier 1 capital adequacy of 13.1 percent as of Sept. 30. The Mumbai-based bank posted a 22 percent increase in net income for the quarter.
To contact the reporters on this story: Anto Antony in New Delhi at aantony1@bloomberg.net; Ruth David in Mumbai at rdavid9@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
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