Mumbai: State Bank of India, India’s largest lender, beat expectations with a 25 per cent rise in second quarter profit on Friday, boosted by increased income from its advances and a drop in its closely monitored bad loan ratio.
Analysts in the sector have been watching for signs that credit quality is stabilising in India. State-owned banks that dominate the industry have been grappling with their worst bad debt burden in a decade, after years of liberal lending and slow credit growth.
Friday’s earnings provided room for optimism. SBI, a bellwether which has been tightening scrutiny of borrowers and increasing fund recovery efforts, said gross bad loans as a proportion of total loans dipped to 4.15 per cent in July-September from 4.29 in the previous three months.
Punjab National Bank, India’s fourth largest, echoed the dip with a ratio of 6.36 percent versus 6.47 percent.
The news sent SBI shares up over 4 per cent on the day and PNB more than 3 per cent, against a near flat market.
“SBI and PNB’s asset quality has been stabilising for the past few quarters,” said Vaibhav Agarwal, analyst at Angel Broking. “Large state-run banks that have slowed down lending are seeing improvement in asset quality: you have to be conservative in a bad environment.”
Yet in an illustration of the sector’s uneven and fragile improvement, Bank of Baroda, India’s second-biggest, posted a spike in bad loans and provisions that pushed quarterly net profit down almost 90 per cent – a fraction of expectations.