India's two leading banks posted better-than-expected profits on Monday but State Bank of India's shares tumbled to a 18-month low after it increased provisions for bad debts and forecast narrower interest margins. ICICI Bank, which has been hammered this year on concerns about its exposure to the global crisis, posted a small increase in profit, when a fall had been expected, and said it sold its non-Indian credit derivatives portfolio.
SBI's provisions for bad debts rose to 9.11 billion rupees ($182 million) in the fiscal second quarter ended September from 2.47 billion rupees in the previous quarter, largely due to a government waiver of small farmers' debts.
Chairman O.P. Bhatt said the state-run bank's net interest margins had peaked and would be a little lower in the next quarter, but he added the bank wanted to keep these above 3 percent. Net interest margins, a key measure of efficiency, were at 3.16 percent in the quarter.
"There is a slowdown. But it's not that slow yet," he said. Two analysts with local brokerages said SBI added 11.4 billion rupees to its gross bad loans between June and September, signifying stress was building up on its loan book.
Bhatt said the bank, which along with its associates controls a quarter of the Indian banking sector, hoped to post loan growth of 26 percent in the fiscal year ending March 2009. "The slippages are a cause for concern given the economic slowdown. Going forward, the market is convinced SBI may not be able to get the best out of its other revenue streams," V.K. Sharma, head of research at Anagram Stock Broking, said.
SBI results reported a 40.4 percent rise in net profit to 22.6 billion rupees, ahead of forecasts of 18.7 billion rupees. State Bank has the lowest cost of funds among the nation's lenders. The bulk of its funds come from savings bank deposits that cost about 3.5 percent in annual interest payments. Its shares slumped more than 14 percent at one stage to the their lowest since April 2007, before ending down 8.6 percent at 1,056.60 rupees.
Shares in ICICI Bank, which has the largest exposure among Indian banks to the global credit crisis, fell as much as 9 percent to a 4-year low, but recovered to end 2 percent higher at 316.30 rupees as the broader market pared losses of 11.5 percent to end down 2.2 percent.
New York-listed ICICI sees single-digit loan growth in the fiscal year as it hopes to rein in rising bad debts, Chanda Kochhar, joint managing director told a conference call. ICICI's bad loans rose to 1.91 percent of net advances from 1.43 percent a year ago, but provisions for bad loans eased to 8.68 billion rupees in the quarter from 8.78 billion rupees in April-June, she said.
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