India's two largest banks both saw rises in quarterly profit in results on Saturday, showing them holding up better than lenders in developed markets despite a steady rise in bad loans. State Bank of India, the country's top lender, met forecast with a 37 percent rise in quarterly net profit while No 2 ICICI Bank posted an unexpected rise in profit, the pair's results showed.
Robust loan growth of 28.9 percent at State Bank, which controls a quarter of Indian bank loans and deposits, helped curb its net bad debt in proportion to net advances, despite signs a downturn in the west is filtering through to India.
Growth in the world's second most populous economy looks set to slow to 6-7 percent this year and next from rates of around 9 percent in the past three years as high borrowing costs at home and recessions in key markets hit demand for manufactured products, automobiles and real estate. But the overall fall-off still looks less significant than that in most developed economies and less than the halving of growth rates some now predict for Asia's other emerging colossus China.
State Bank's chairman O.P Bhatt said on Friday the bank should grow by at least a quarter in FY10 and would need up to $4 billion in capital to meet robust loan demand largely from corporates amid tight liquidity overseas. Analysts reckon rising bad debts or non-performing loans will be the main risks for Indian banks in the coming quarters as the slowing economy hurts jobs and incomes.
"The pace, timing and price of credit creation over the past five years is lending itself to a relatively large NPL cycle in the coming months," Morgan Stanley said in a note adding its expected Indian banks NPLs to rise to 6 percent in 2011. The New York listed ICICI, which is slowing lending to check rising defaults saw its bad debts surging to 2.07 percent of net advances from 1.5 percent a year-ago.
"The Bank has pursued a strategy of lightening the balance sheet and prioritising capital conservation, liquidity management and risk containment given the challenging economic environment," ICICI said in a statement. State Bank said its net NPLs rose 22 percent to 68.64 billion rupees ($1.4 billion) in the quarter ended December from a year-ago but fell to 1.36 percent from 1.44 percent as a percentage of net advances.
"NPA pressure is clearly coming and banks should use high treasury income and raise provisions to clear bad debts," said Vaibhav Agrawal, a banking analyst, at Angel Broking. State Bank's treasury income, primarily from trading in bonds, climbed 51.4 percent to 60.04 billion rupees after bond yields tumbled 337 basis points in the quarter as the central bank slashed key rates. Bond prices move inversely to yield.
The bank, which has more than 11,000 branches in India and abroad, said net profit rose to 24.78 billion rupees in the fiscal third quarter from 18.09 billion rupees a year ago. A Reuters poll had forecast a net profit of 24.7 billion. State Bank said it had provided 7.5 billion rupees to cover for pension liabilities as government bond yields fell.
Net profit at ICICI, which named N.S. Kannan - presently a executive director at its life insurance joint venture with UK's Prudential - as chief financial officer, was 12.72 billion rupees in the quarter above 12.3 billion rupees and Reuters poll forecast of 10.7 billion rupees. Profits at ICICI, which bore the brunt of investor and depositor concerns about its exposure to global financial crisis in the September quarter, were largely driven by treasury income, which more than trebled to 9.76 billion amid flat interest and other income.
Shares in State Bank, which the market values at about $13.5 billion, shed 12 percent in the December quarter, less than half the 25 percent fall in the benchmark index and a 16 percent drop in the sector index. ICICI, which has a market value of about $8.3 billion, fell 16 percent in the quarter.
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