State Bank of India Profit Misses Analysts’ Estimates

May 14 (Bloomberg) -- State Bank of India, the nation’s largest lender, posted its first drop in profit in more than three years and missed analysts’ estimates as it set aside more funds for bad loans. The shares fell.

Net income for the three months ended March 31 fell 32 percent to 18.7 billion rupees ($413 million) from 27.4 billion rupees a year earlier, according to a filing to the National Stock Exchange today. The profit compared with the 27.3 billion rupee average of 21 estimates compiled by Bloomberg.

Chairman Om Prakash Bhatt is increasing provisions for delinquencies at the government-controlled lender, which accounts for almost a fifth of the nation’s banking assets, after India’s central bank raised interest rates twice since mid-March to curb inflation. The bank’s profit on sale of investments also fell 72 percent during the quarter.

“These are poor numbers compared to most other frontline public-sector banks,” Prabodh Agrawal, executive director at IIFL, said in an interview from Singapore. “Other banks that have high exposure to the small-and-medium enterprise segment haven’t seen this kind of pain: Most banks are indicating that the worst of the credit crisis is over for Indian companies.”

IIFL rates State Bank stock as an “add.”

Shares Drop

Shares of State Bank dropped 4 percent, its biggest decline in more than three months, to 2,224.25 rupees at the close of trading in Mumbai today. The stock was the third-worst performer in the quarter ended March 31 on the Bombay Stock Exchange’s Bankex index, which tracks 14 lenders.

The Mumbai-based lender, whose results are reported on a stand-alone basis, operates more than 12,000 branches.

State Bank, which is in talks with the government about raising capital, plans to sell 200 billion rupees in shares in a rights offer to investors, and wants its biggest stakeholder to invest, Bhatt told reporters in Kolkata. The timing of the share sale hasn’t been determined, and the offering won’t reduce the government’s stake in the company, he said.

During the quarter, the bank increased provisions for non- performing assets, or NPAs, by 69 percent to 21.9 billion rupees from 13 billion rupees a year earlier, according to the statement. Its gross NPA ratio widened to 3.05 percent from 2.86 percent.

The growth in NPAs is likely to slow, Bhatt said today.

Lending Profitability

Net interest income, or revenue from borrowers after deducting interest paid to depositors, rose 39 percent to 67.2 billion rupees. Net interest margin, a measure of lending profitability, widened to 2.96 percent from 2.39 percent.

Treasury income, or earnings from trading in bonds and currencies, rose 25 percent on a pretax basis to 46.7 billion rupees from 37.4 billion rupees. State Bank’s earnings from wholesale and retail banking declined.

Smaller rival ICICI Bank Ltd., India’s largest non-state lender, last month said fourth-quarter profit rose 35 percent to 10.1 billion rupees as it reduced unsecured loans while boosting domestic lending. That was in line with the 10 billion rupee average of 21 estimates compiled by Bloomberg.