State Bank of India (SBI), India's largest lender, said quarterly earnings rose 12% arresting two quarters of fall, but a surge in bad loans and a slowing economy could erode its profitability for a few more quarters.
Net profit of the bank, which is the nation's financial sector barometer, rose to Rs2,810 crore fromRs2,501 crore a year ago as it lent more to individuals and companies and net interest income - the difference between the return or yield on loans and the cost of deposits - also grew.
But bad loans due to a slowing economy and its continuation took the sheen off its earnings as investors worried that it may be a long wait before SBI overcomes it and issues related to its capital.
SBI shares fell 6.8% - the highest in the last six months - to close at Rs1,862. The bank, which has a market share - both loans and deposits - of close to a quarter in the banking industry, had shocked investors with a 99% drop in earnings in the quarter to March '11 and 46% in the quarter to June - weighed down by higher provisioning or money set aside for bad loans.
SBI's earnings were muted in the quarter to September as the bank decided not to accept any interim dividends from its associate banks considering that in the year-ago period it booked Rs280 crore on this count.
NPAs at 4.19% of total advances
Besides last year, SBI earned Rs350 crore in financing steelmaker Tata Corus, unlike this year. That meant a slide of 14% in its non-interest income - money earned from business other than core lending such as dividends, guarantees and selling third-party products - at Rs 285 crore.
But what has stoked concerns is the rise in non-performing loans - known as NPAs or bad loans - that aggregated to 4.19% of total advances with loans amounting to Rs8,000 crore slipping from the standard category, which denotes an asset on which there is no default, to the sub-standard category, which is marked by defaults.
Its net NPAs - bad loans arrived after making provisions - was 2.04%. State Bank of India Chairman Pratip Chaudhuri, while saying the lender was actively pursuing recovery of bad loans, warned that there could be a rise in stressed assets considering the slowdown in growth.
"Looking at the stress in the system, there is a probability that gross NPAs could go up further. What one should look at are net NPA levels, which reflect the bank's ability to withstand the pressure of bad portfolios," he said on Wednesday after the results were announced.
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