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Friday, February 14, 2014

State Bank of India vows to tackle bad loans after Q3 profit miss

State Bank of India (SBI) said on Friday it would boost vigilance of bad loans after the country's largest lender disappointed analysts and posted a fourth consecutive quarterly drop in net income.

Like state-run peers Punjab National Bank, Canara Bank and Bank of India, SBI's profits have been clipped by an increase in defaults by companies battling reduced cash flows, high inflation and delays in government approvals for projects.

To avoid a further worsening in its asset quality, SBI will conduct weekly reviews, and install new technology, to quickly identify loan accounts showing signs of stress, Chairwoman Arundhati Bhattacharya told reporters.

"We will do a better management of what we have and have much better processes in place to pick and choose. We will have much better early warning signals," she said.

SBI posted a 34 per cent drop in third quarter net profits to Rs 2,234 crore ($358.21 million) in the quarter ended December, lagging analysts' estimate of Rs 2,530 crore.

Net interest margins, a key gauge of profitability, were largely unchanged at 3.51 per cent from 3.49 per cent in the preceding quarter.

Gross non-performing loans as a per centage of total assets rose to 5.7 per cent from 5.6 per cent in the previous quarter.

"Revenue and loan growth numbers have come in-line but nobody is talking about growth anymore. The entire focus is on asset quality," said Manish Ostwal, banking analyst at KR Choksey Shares & Securities.

SBI, which accounts for a quarter of India's loans and deposits, saw a tepid response from foreign investors for a $1.28 billion share issue last month largely because of concerns about its asset quality and earnings growth in a slowing economy.


SBI chairwoman Bhattacharya, who took office last October, is under pressure to tame non-performing loans and reverse weakening profit growth while helping to reassure investors who have dragged down the bank's shares by almost half from their peak in November 2010.

Bhattacharya said the bank had restructured outstanding loans worth Rs 561as of the end of December, about 61 per cent higher from a year ago.

Bad debts, however are likely to rise. Last month, India's top private sector lender ICICI Bank warned that corporate defaults would rise in the next few quarters. ICICI posted its slowest profit growth in four years in the December quarter.

SBI Chief Financial Officer R.K. Saraf also said he expected the banking sector's loan problems to linger as India's economy grows at its slowest pace in a decade.

"Mid corporates neither have the resources nor the management bandwidth nor the wherewithal to face a prolonged slowdown like this," Saraf told reporters. "We feel, going forward, this stress will continue for some time."

Ratings agency Fitch expects stressed assets at Indian banks, as well as bad and restructured debt, to total 14 per cent of loans by March 2015, up from 9 per cent in March 2013.

SBI shares, valued at about $17 billion, closed down 1.7 per cent at Rs 1,475.10 in a Mumbai market that closed 0.9 per cent higher.

Source: Economic Times


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