SBI profit beats on higher interest income, better asset quality

The State Bank of India (SBI) office building is pictured in Kolkata - Reuters 

BENGALURU (Reuters): State Bank of India (SBI) reported a three-fold jump in quarterly profit and beat market expectations on Friday as asset quality at the country’s largest lender improved, sending shares up more than 7%.

Gross bad loans as a percentage of total loans eased to 7.19% in second quarter ended 30 September compared with 7.53% in the prior quarter and 9.95% a year earlier.

The Mumbai-based lender’s performance is a bright spot in India’s banking industry where weak loan growth due to a sluggish economy has compounded the near $150 billion bad loan problem.

The public sector bank’s results come against the backdrop of rising stress in the corporate books of private sector banks such Axis Bank Ltd. and Kotak Mahindra Bank Ltd.

Earlier, Kotak said it was cutting its expectation for full-year loan growth. SBI on Friday maintained its credit growth expectation at 12% for the full year and said slippages, or fresh addition of bad loans, dropped 17.9% to INR 88.05 billion in the quarter.

Chairman Rajnish Kumar said the bank was looking at a slippage ratio of 2% for the year, slightly higher than 1.60% in fiscal 2019.

SBI said a one-time gain of INR 34.84 billion from the stake sale of its life insurance unit helped it shore up provisions for stressed loans related to a power sector company and a non-banking financial firm.  “The management’s indication that they have already made sufficient provisions cheered the market of the bank’s prudence to take care of any future liabilities,” SMC Global Securities Assistant Vice-President - Research Saurabh Jain said.

The bank’s net interest income climbed 17.7% to INR 246 billion in the quarter, while net interest margin, a key indicator of a bank’s profitability, rose to 3.22%, up 42 basis points from a year ago.