State Bank of India Ltd., the nation’s largest lender, gained the most in more than two months after posting a record profit in the fourth quarter, beating analysts’ estimates.
Net income climbed to 40.5 billion rupees ($738 million), or 63.76 rupees a share, for the three months ended March 31, from 208.8 million rupees, or 0.33 rupees, a year earlier, the Mumbai-based bank said in a statement to the exchanges today. That compares with the 35.3 billion-rupee median of estimates compiled by Bloomberg.
State Bank’s risk buffers widened in the quarter, following a 79 billion-rupee capital infusion by the government, while its bad-debt ratio narrowed from December levels. The profit increase was driven by a gain in loan income and a drop in funds set aside for defaults. Policy makers are further easing a credit squeeze by cutting banks’ reserve requirements.
“With a capital buffer above the government target and reduction in bad loans, the lender seems to be getting back on the growth track,” said Dolly Parmar, a banking analyst at Mumbai-based brokerage IFCI Financial Services Ltd. “The bank will be in a position to grow aggressively if the government sticks to its promise of further capital infusion this year.”
The injection of funds by the government, State Bank’s biggest shareholder, ended a two-year wait and allowed the lender to meet tighter global rules and replenish capital depleted by provisions against bad loans. The bank’s capital adequacy ratio under the so-called Basel II norms widened to 13.86 percent in the quarter from 11.98 percent last year, it said today.
The lender gained 5 percent, the most since Feb. 28, to 1,940.55 rupees in Mumbai trading today. The stock rose 29 percent last quarter for its best performance since the three months ended September 2010, and surpassed the 13 percent gain in the benchmark BSE India Sensitive Index during the period.
Net interest income, or revenue from lending minus payments on deposits, rose 44 percent to 116 billion rupees while non- interest income climbed 11.7 percent to 54 billion rupees, State Bank said. The net interest margin, a measure of lending profitability, widened to 3.9 percent from 3.1 percent a year ago.
Soured loans at State Bank fell to 4.4 percent of total credits in the quarter ended March 31, from 4.6 percent in the quarter ended December 31. The lender had reported a 99 percent decline in profit a year earlier as provisions for bad loans and pensions increased.
“We declared war on non-performing loans and it seems like we are winning,” Chairman Pratip Chaudhuri said in a televised press conference in Kolkata. “The fall in bad loans gives us the confidence that the quality of loans is well under control.”
Non-performing loans of state-run Indian banks climbed to 2.84 percent of total advances in the year ended March 31, from 2.35 percent in the prior year, junior finance minister Namo Narain Meena said on May 8.
Indian banks may need to raise as much as $50 billion to add to their retained earnings by 2018 to meet capital requirements at a time when their credit ratings are being squeezed by slowing economic growth and bad loans, Fitch Ratings said on May 4. State Bank will be the most affected by the higher requirements given its market share, Fitch senior director Ananda Bhoumik said in a statement at the time.
The government will infuse further capital into the state- owned lender to help it comply with capital norms, D.K Mittal, banking secretary at the finance ministry, said in an interview on March 21.
The 205-year-old bank’s total outstanding loans increased by 15 percent to 8.68 trillion rupees at the end of March from 7.57 trillion rupees a year earlier. The net interest margin, a measure of lending profitability, widened to 3.9 percent from 3.1 percent in the year before.
The nation’s bank loans, excluding advances made to state agencies for food procurement, expanded by 19 percent as of March 30 from a year earlier, according to data compiled by the central bank.
Credit-default swaps on State Bank fell 37 basis points this year to 358 basis points yesterday, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay face value for the underlying debt should a company fail to adhere to its agreements.
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